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Chevron signs Ukraine shale exploration deal

The agreement will see the development of gas from the Olesko field in western Ukraine

Chevron has signed a draft production sharing agreement (PSA) for shale-gas exploration in Ukraine. The agreement was for appraisal and development of gas from the Olesko field in the Lviv and Ivano-Frankivsk regions, western Ukraine.

Oleh Proskuriakov, Ukraine's Environment and Natural Resources Minister, said on 30 October that the final agreement will be signed in Kiev on 5 November, local media reported.

Prime minister Mykola Azarov said Chevron would initially invest $350 million in shale-gas exploration in the Olesko field, which is thought to hold 3 trillion cubic metres (cm) of shale gas resources. This would eventually rise to $10 billion, Azarov said.

Chevron did not immediately respond to a request for comment.

In February 2012 the Ukraine government offered shale-exploration acreage in the Olesko and Yuzovska blocks of western and eastern Ukraine, as well as offshore acreage in the Black Sea. Chevron, Shell, ExxonMobil and Eni all bid for the unconventional acreage. Chevron and Shell emerged victorious.

In January 2013, Ukraine awarded a 50-year PSA to Shell for the Yuzovska field, in the eastern Dniepr-Donets Basin. In September, Shell signed a deal to explore for shale gas in the Yuzovska field. The company is also expected to spend around $10bn in developing the field's unconventional resources, which could amount to around 4 trillion cm of shale gas.

Azarov has said Ukraine hopes the field will eventually produce around 20bn cm of gas per year.

Developing indigenous gas reserves would help reduce Ukraine's energy dependency on Russia. Last year Ukraine imported 29.8 billion cm of natural gas, according to Cedigaz, all from Russia. Relations between Ukraine and Russia over gas supply have been tense in recent years.

Gazprom demanded on 29 October that Ukraine pay an overdue gas bill, re-igniting fears of a new "gas war" between the countries. After pricing disputes in 2006 and 2009 Russia temporarily cut gas supplies to Ukraine, affecting onward exports to Europe.

Although Ukraine has significant potential for developing shale gas and coal-bed methane (CBM) it needs foreign help to get the industry off the ground.

Ukraine will also need investment of around UAH1.7 trillion ($208bn) to modernise its natural gas transmission, distribution and storage infrastructure by 2030, the International Energy Agency (IEA) has said.

Most of Ukraine's conventional oil and gas resources are concentrated in the Carpathian region of western Ukraine, the Dnipro-Donetsk basin in the east and the Black Sea-Azov Sea area.  The Dnipro-Donetsk region alone accounts for 80% of the country's 900 billion cm of proven natural gas reserves, according to Cedigaz.

Ukraine could have 7 trillion cm of shale and tight gas resources, according to US Energy Information Administration.

The most prospective areas for CBM production are in eastern Ukraine, while shale gas is being explored in the Lubin basin, which extends from western Ukraine into Poland, as well as in the east of the country.

The government has said that with the help of unconventionals domestic natural gas production could reach as much as 46.7bn cm per year by 2030, up from around 18.2bn cm last year. The IEA thinks that CBM will be commercially developed first, with shale gas to follow.

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