FEATURE: Ukraine sets shale gas agenda, but opposition grows
London (Platts)--30Jan2013/506 am EST/1006 GMT
Ukraine sees the development of its vast shale gas resources as one
answer to its dependence on Russian gas imports, and last week's $10 billion
agreement with Shell to develop the Yuzivska shale gas reserves in eastern
Ukraine is evidence of the pulling power of the country's potential.
Ukraine's energy minister Eduard Stavytskiy has said the project could
produce up to 20 billion cubic meters/year of gas within a decade -- just
about equal to the country's current imports of Russian gas.
Add to that the other shale gas projects underway in Ukraine -- with the
likes of Chevron and Italy's Eni at the helm -- and a move away from Russian
dependence seems a distinct possibility.
And there are also other unconventional gas projects being developed in
Ukraine -- earlier this week the UK's Hutton Energy said its first well
drilled to target tight gas at its block in the Donets Basin in eastern
Ukraine had confirmed the presence of hydrocarbons.
But obstacles remain in a country notorious for failing to get new
upstream projects off the ground.
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Legal action is being prepared to challenge the Shell deal, both on
technical and environmental grounds.
On January 25, Ukraine's second political party mounted a legal
challenge against the approval of the Yuzivska project.
The Front for Change party filed a lawsuit seeking to cancel the January
16 approval by the Donetsk council of the Yuzivska project, arguing that it
had not been properly debated within the community and could be corrupt.
"The Donetsk council has violated the rules by making a hasty secret
decision to approve the project that has signs of corruption," a Front for
Change statement said. "The council deprived the people of access to all the
The Front for Change -- part of the biggest opposition group in
parliament, jailed Yulia Tymoshenko's Batkivshchyna (Fatherland) party -- is
the second major party to oppose the shale gas project after similar concerns
were recently raised by Svoboda, the nationalist party.
Svoboda said earlier in the month it would look to challenge the
approval of the project by the Kharkiv council, citing corruption and
The parties, both of which are represented in parliament, pose a growing
political challenge to President Viktor Yanukovych and his government, which
hopes the Shell project will boost economic growth and improve energy
In fact, the stakes couldn't be higher, as illustrated by comments made
last week by Ukraine President Yanukovych on signing the agreement with Shell
in Davos, Switzerland.
"Now, we have a joint responsibility because we gave birth to a new
business," Yanukovych said.
"This project is beneficial because due to these investments we will
increase our own output of gas," Yanukovych said. "We will create new jobs,
boost the economy and will increase revenue to the budget."
Shell is to work with Nadra Yuzivska, a joint venture in which the
state-owned resources company Nadra Ukrayiny owns 90%. SPK-Geoservice, a
small private company, owns the remaining 10% in Nadra Yuzivska.
Shell is expected to invest $410 million to drill the first 15 wells,
Oleh Proskuriakov, the environment and natural resources minister, said
earlier in January.
The total area of the Yuzivska field is 7,886 sq km. The deposit could
hold 4.05 Tcm of gas, according to the government.
Proskuriakov has also projected output from Yuzivska could hit 10
Bcm/year in 10 years and 20 Bcm/year in 15.
Ukraine's Stavytskiy characterized the latter figure as representing the
"We can project that in an optimistic scenario, the project will produce
20 Bcm/year of gas, while under a pessimistic scenario, 7-8 Bcm/year,"
"If we reach the optimistic scenario, this will completely eliminate the
deficit of gas that we have and we will move to a surplus," Stavytskiy said.
Adjacent to the Shell block is Hutton's tight gas block in the Donets
Hutton started drilling the KRA-1 well late last year as part of a new
joint venture with Canadian explorer Iskander Energy.
Hutton, a small explorer focused on eastern Europe, was originally
awarded the license for the block in January 2010.
"The preliminary results from the first well were encouraging with
interpreted pay in three potential intervals," Hutton said.
Hutton said previously it had targeted the region due to its relatively
deep coals containing significant tight sand potential, independently
estimated at some 1.05 Tcf (30 Bcm).
The new joint venture -- 49% Hutton and 51% Iskander -- will test the
tight sands in the Donets Basin.
Once the results of the first two wells are analyzed, decisions will be
made about a third well and potentially a pilot production program in 2013,
the company said.
--Stuart Elliott, email@example.com
--Edited by Maurice Geller, firstname.lastname@example.org