Shale Gas Deal with Shell Moves Ukraine Toward Energy Independence

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Ukraine made a significant move toward its goal of energy independence from Russia this week when authorities in the eastern Donetsk region approved a planned shale gas production-sharing agreement.

Ukraine has Europe's third-largest shale gas reserves at 1.2 trillion cubic meters, after France and Norway. Currently, it is importing Russian natural gas at the high price of $430 per thousand cubic meters, under the terms of a deal signed in 2009. In the U.S., power generation companies pay about $172. Hence, the country's keen interest in using hydraulic fracturing ("fracking") technology to exploit the resource held in the major Yuzivska shale gas field.

Oleh Proskuryakov, Ukraine's environment and natural resources minister, said that if exploration is successful in the Yuzivska area, the country would be able to produce a "few billion" cubic meters of gas annually in only five to six years, and 8 billion to 10 billion in a decade. At its peak, in 13 to 15 years, annual production may exceed 20 billion cubic meters.

"This will not only strengthen our energy independence but also will significantly reduce gas prices," he said.

The minister said that the production- sharing agreement represented the biggest project in the country and is expected to attract billions of dollars of incoming investment. He said that, depending on the eventual size of the project, Shell expects the total investment in the project to be anywhere between $10 billion and $50 billion. A final agreement could be signed before the end of March.

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