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Ukraine targets shale-gas production within decade

Ukraine’s shale-gas tender could lead to billions of dollars of investment from major oil and gas companies and add as much as 13 billion cubic metres (cm) of gas production per year within the next 10 years, a senior government official has said

"We are planning in 10 years the Yuzovska area will produce 8 billion to 10bn cm of gas, and the Olesko field 2bn to 3bn cm of gas per year. We see investment in the Yuzovska area over 40-50 years at $40bn to $50bn, with the Olesko figure 40% lower because of slightly different geology," Eduard Stavytsky, the head of the State Service for Geology and Mineral Resources, said during a television interview.

Ukraine has produced around 18.5 billion cm of gas a year in recent years. The most optimistic government scenario, then, sees the Yuzovska and Olesko fields boosting gas output by about 70% over current levels to 31.5bn cm. Stavytsky said that could be enough to make Ukraine self-sufficient. That, however, assumes that a major push to reduce gas consumption from around 52bn cm in 2010 will be successful.

Stavytsky named US supermajors ExxonMobil and Chevron, Canadian independent Talisman and European majors Shell, Eni and BP, through its Russian venture TNK-BP, as companies that have shown an interest in the shale-gas tenders. He added that the government expected investment of as much as Hm1.5bn ($186.6 million) in the early exploration phase at the Yuzovska field and as much as Hm2bn at the Olesko field.

The State Service for Geology has upgraded earlier estimated shale and conventional gas reserves at the two fields put up for tender – Yuzovska and Olesko – to as much as 12.5 trillion cm. The 18,500 square km Yuzovska field is estimated to hold 4 trillion to 10 trillion cm, while potential resources at the 15,000 square km Olesko field are estimated at about 2.5 trillion cm of gas. Production from the fields could start as early as 2018, Stavytsky said.

The US’s Energy Information Administration has estimated that Ukraine’s recoverable shale gas resources are around 1.2 trillion cm, substantially lower than Ukraine’s own estimate.

The Ukrainian government announced the opening of its first shale-gas focused acreage tender on February 23. The winner of the bidding round will have the right to sign a production sharing agreement and form a 50-50 joint venture with state-run Nadra Ukrainy to develop the fields.

Little-known local services company and consultant SPK-GeoService will also take part in the project through an agreement it signed with Nadra Ukrainy that gave it a 10% interest in the state-run company’s stakes in the Yuzovska and Olesko projects. SPK-GeoService secured its involvement in the projects by pledging to fully fund the Nadra Ukrainy joint venture.

Some observers have questioned SPK-GeoService’s role in the development and the company’s ability to raise the potentially large sums needed to fund its share of the projects. However, that is unlikely to become a major issue as the winning bidder is expected to fund the whole of the early exploration phase.

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