Shell and Ukraine signed $10 billion deal in Davos

Shell‘s Chief Executive Officer, Peter Voser, and Ukraine’s President Viktor Yanukovich took the opportunity of the World Economic Forum in Davos to sign a $10 billion agreement to develop shale gas resources in Ukraine.

Last May 2012, Ukraine had selected two major international oil companies, Chevron from USA and the Anglo-Dutch Shell to explore and develop the potential unconventional reserves in Ukraine.

This award resulted from a global bidding process related to the Yuzivska and Olesska shale gas fields which had also involved Eni from Italy, ExxonMobil from USA and TNK-BP from Russia.

If ExxonMobil did not succeed to take stake of these shale gas licenses put for bids, the super major US company is already active in Ukraine with permit to explore and develop offshore fields in the Ukrainian territorial waters of the Black Sea.

ExxonMobil is also looking for partners for an onshore liquefied natural gas (LNG) plant along the Black Sea.

According to the US Energy Information Administration (EIA) agency, Ukraine should hold the third largest reserves in Europe after Poland and France.

While these figures still need exploratory campaigns to be confirmed, EIA estimates Poland shale gas reserves to reach 5.2 trillion cubic meters (tcm), with France standing closely behind with 5.1 tcm and Ukraine taking the third position with 1.2 tcm.

These reserves of unconventional gas are concentrated on western Ukraine in the Lviv and Ivano-Frankivsk regions around the Oleska gas field and on eastern Ukraine in the Donetsk and Kharkiv regions where the Yuzivska field is lying across.

According to the Ukraine’s State Geological Service agency, Oleska should hold between 0.8 and 1.5 tcm reserves of shale gas while Yuzikska is estimated to 2 tcm.

By comparison, Ukraine imported from Russia 33 billion cubic meters (bcm) in 2012.

In this context, the development of the Oleska and Yuzivska gas fields could drastically contribute to reduce Ukraine’s reliance on Russian gas import.

Disputes between Russia and Ukraine erupted in 2006 and 2009, about the transfer price of the gas and the use of the gas export pipeline crossing Ukraine to deliver western countries.

Since then, both countries are looking for solutions to reduce their mutual dependency.

Shell to pioneer large scale shale gas E&P in Europe

In signing a $10 billion production sharing agreement (PSA) with Shell, Ukraine takes a major leap to cut Russian natural gas import.

Dedicated to develop the Yuzivska shale gas field with the local national gas company, Naftogaz, Shell is building a break through Market Leadership in Europe with the largest ever investment in Europe in shale gas.

ExxonMobil dropped the ball in Poland driving the country to square one of its unconventional resources development.

France put a moratorium freezing exploration and appraisals initiatives on shale gas.

Chevron has been awarded the license for the Oleska formation in Ukraine but still meets difficulties to get all the approval to proceed from the Regional Council because of local environmental concern.

While Shell obtained all the signatures from the Ukraine Government and Regional Council to proceed with the Yuzivska license.

The production sharing agreement signed in Davos gives Shell 50 years permit.

The $10 billion capital expenditure of the Yuzivska gas field development project represents the largest investment from a western company in the former Soviet Union Republic.

Shell is planning to drill 15 appraisal wells to adjust its development strategy and is targeting to produce 20 billion cubic meters of gas by 2018.

On this base, this project would have the effect to double the local production of gas in Ukraine and to reduce by more than half the import from Russia.