Ukraine expects shale gas exploration results from Shell by 2015

Wed Jan 30, 2013 6:45am EST

Related Topics

* Ukraine expects at least $10 bln in project investment

* Expects realistic reserves estimate by 2015

* Hopes to ease dependence on Russian gas imports

KIEV, Jan 30 (Reuters) - Shell will spend about two years and $410 million to explore the Yuzivska shale gas area in Ukraine and assess its reserves, Ukrainian Energy Minister Eduard Stavytsky said on Wednesday.

Shell and Ukraine, which sees shale gas development as vital to easing its dependence on Russian gas supplies, signed a landmark production sharing agreement on Yuzivska this month. Kiev says the project could involve $10 billion in investments.

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.

However, neighbouring Poland, which was believed to have huge shale gas reserves, slashed its reserve estimate last year to about a 10th of that given by the EIA after carrying out its own studies.

Stavytsky said Ukraine will have a realistic assessment of Yuzivska's reserves by 2015.

"According to the agreement (with Shell), the company has committed to investing $410 million that will be spent on exploration," he told reporters.

"The first results are due before 2015, and the confirmed reserves will paint a true picture of the (prospects) of commercial production at that field."

Stavytsky said the 50-year PSA would provide Ukraine with between 31 percent and 60 percent of the profits from the project.

Ukraine hopes Yuzivska will eventually produce 20 billion cubic metres (bcm) of gas per year and will, together with other projects, eliminate the need for gas imports.

Ukraine's dependence on Russian energy supplies is a source of tension between Kiev and Moscow. Ukraine says the price of gas is exorbitant and is a drag on its economy.

In an attempt to cut costs, Ukraine reduced Russian gas imports to about 33 bcm last year from 40 bcm in 2011.

But Russia responded this month with a $7 billion bill, saying Ukraine was obliged to buy at least 42 bcm or pay for the gas it had refused to buy. Ukraine says it will contest the bill.

"As for the bill, lawyers are looking into it and we will provide a legal response, and I am sure we will reach an understanding with our (Russian) partners," Stavytsky said.

"I think that, from the legal point of view, Ukraine has met its obligations." (Reporting by Pavel Polityuk; Writing by Olzhas Auyezov; editing by Jane Baird)

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