This document summarizes challenges facing the development of shale gas in Ukraine. It notes that Ukraine imports over half its gas from Russia at high and rising prices. Ukraine has significant untapped shale gas reserves, especially in the Dnieper-Donets Basin and Lublin Basin shared with Poland, but faces legislative challenges. These include a complicated licensing process, price ceilings, small plot sizes, short agreement terms, and reluctance to use production sharing agreements, which could discourage foreign investment in shale gas exploration and production. Overcoming these challenges could help Ukraine boost domestic gas production and reduce dependence on Russian imports.
3. Ukraine: Dependence from
energy imports from Russia
• Energy imports accounts for 17% of the total
Ukrainian imports and 29% of imports from
Russia
• Annual consumption – 55 bill. m3, imports - 33
bill. m3
• Domestic production – 20-21 bill. m3
4. Shale Gas Basins of Eastern
Europe
Source: Advanced Resources International, Inc.
5. Shale gas in Ukraine
Dniper –
Donets basin,
1.34 trillion m3
Lublin Basin (Poland-
Ukraine),
1.4-4.172 trillion m3
Source: Advanced Resources International, Inc.
6. Shale gas in Ukraine
• 4th-largest in risked GIP reserves of shale gas
in Europe (excluding the Balkans, Italy and the
Pyrenees):
– 48 Tcf of gas in-place (risked) in the prospective
area of the Dnieper-Donets Basin
– 149 Tcf of gas in-place (risked) in the Lublin Basin
– Of this 197 Tcf, according to estimations 42 Tcf
could be ultimately technically recoverable
7. Exploration of shale gas in Ukraine
• Signed five memoranda with foreign companies for
cooperation in the field of shale gas production
(Shell, ExxonMobil, Chevron, Eni, Eurogas)
• Till the end of 2012 Ministry of natural resources is
planning to receive independent assessment of shale
gas reserves in Ukraine
• The first tenders for exploration and development of
individual plots will take place in the coming months
(according to the officials)
• In 2013 may be drilled the first wells
• In 3-5 years the first commercial gas can be produced
• Shell predicts that by early next decade, SG production
will reach 15-20 billion cubic meters per year
8. Shale gas break-even price vs.
market gas price, $/1000 m3
400 Shale gas break-evеn price
range
350
Market gas price
300 range 2010-2011
250
200
150
100
50
0
Germany France Poland USA Ukraine
Source: SBC Analysis
9. Challenges. Legislation
• Registering concession
In Poland registering a concession and getting an exploration license is done through the
Energy Ministry and takes approximately three months; it can take a year or more in
Ukraine and it is a complicated process involving several ministries and departments
• Price ceilings on gas sales. Subsidies for individual gas
consumers (population, metallurgical, chemical companies)
New pricing model for Russian gas may reduce the price Ukraine pays for gas, and create a
domestic price ceiling for independent producers
• Marginal area of the plots is only 500 m2
In Poland - 3.5-4 thousand km2
• Short term of the agreements
Shell intended to invest in the segment if bigger areas are offered for production and
license periods are lengthened and tax breaks introduced
• Dislike of Ukrainian authorities to production sharing
agreements (PSA)
Only one PSA has been concluded with Vanko Prikerchenskaya (2006), and then it
caused a serious conflict, not settled yet
• Free access to the gas transportation system and gas storage