KIEV | Wed May 16, 2012 8:40am EDT

May 16 (Reuters) – Royal Dutch Shell and Chevron Corp, Ukraine’s partners for exploring and developing shale gas, will start commercial gas production in 2017, a government minister said on Wednesday.

“Drilling is likely to start next year,” Environment and Natural Resources Minister Eduard Stavitsky told a news conference of plans which focus on two potentially large shale gas fields.

Shell will develop the Yuzivska area, in eastern Donetsk and Kharkiv regions, while Chevron will explore the Olesska area in the western region of Lviv.

“Commercial extraction on both areas will begin in 2017,” he said.

The two areas could yield at least 15 billion cubic metres of gas per year and Yuzivska alone – where about 3,000 wells were likely to be drilled – could produce a total of one trillion cubic metres, he said.

The former Soviet republic has Europe’s third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic metres), according to the U.S. Energy Information Administration, behind France and Norway.

Ukraine’s State Geological Service, which is more optimistic than the U.S. EIA, estimates Yuzivska reserves at 2 trillion cubic metres and those of Olesska at 0.8 to 1.5 trillion.

Stavitsky declined to give details of the future investments in gas production, while the geological service has said the Yuzivska area would require $250 million-$300 million in exploration investment, while Olesska would need $150 million-$200 million.

The winners of the tender will enter production sharing agreements with state firm Nadra Ukrainy and SPK-GeoService, a privately-owned Ukrainian company chosen by the government as its partner in a separate tender this year.

Ukraine imports about a half of its gas from Russia at a price that has been rising steadily for the last few years and is expected to average about $440 per thousand cubic metres this year.

(Reporting by Pavel Polityuk; editing by Richard Balmforth and James Jukwey)

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