Ukraine readies giant shale gas deal with Shell

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Ukraine took a step closer to a breakthrough shale gas deal with global energy major Royal Dutch Shell when local authorities in the eastern Donetsk region approved a planned production sharing agreement.

Ukraine, which hopes its big shale gas reserves will help end reliance on costly imports of Russian natural gas, chose Shell last May as a partner to develop the Yuzivska shale gas field.

Deputies of the Donetsk regional council voted to approve the deal with Shell, removing one of the final hurdles to an agreement.

Ukraine is said to have Europe's third-largest shale gas reserves at 1.2 trillion cubic metres behind those of France and Norway, according to the US Energy Information Administration.

"If exploration is successful in the Yuzivska area, we will be able to produce a few billion cubic metres [bcm] of gas per year in just five-six years and eight to 10 bcm in 10 years," Environment and Natural Resources Minister Oleh Proskuryakov told the council.

"At its peak, in 13-15 years, annual production may exceed 20 bcm. This will not only strengthen our energy independence but will also significantly reduce gas prices."

Ukraine currently pays about $430 (€322) per thousand cubic metres for Russian gas under a 10-year deal signed in 2009 by a preceding government. The present Kyiv government says the price is exorbitant, but it has so far failed to persuade Russia to bring it down.

"Secondly, the Yuzivska area production sharing agreement is the biggest project in Ukraine that will attract tens of billions of dollars in investment," Proskuryakov said.

"Shell sees investment at $10 billion (€7.48 billion) under the most likely scenario and over $50 billion (€37.4 billion) under the optimistic scenario."

Shell's office in Ukraine declined to comment on the figures or to say any expected date for signing a deal. Under the terms of the tender, the two sides have until May to sign a contract.

In a separate tender also carried out last May, Ukraine picked Chevron to develop another shale gas area, Olesska in western part of the country. The government has not yet signed a production sharing agreement with Chevron either.

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