* Ukraine ranks 3rd in Europe by estimated shale gas
* Winners expected to invest hundreds of millions in
* To team up with state firm and its private local partner
* Ukraine hopes to ease its dependence on Russian gas
By Pavel Polityuk
KIEV, May 10 Ukraine is likely to award tenders
to two Western energy companies for potentially large shale gas
fields, a government source said on Thursday, as Kiev tries to
reduce its dependence on gas imports from Russia.
Anglo-Dutch Shell and Chevron of the United
States are likely to win the right to explore and develop the
fields, seeing off rival bids from Italy's Eni, Exxon Mobil and
Russia's TNK-BP, the source told Reuters.
One contract area, Yuzivska, is in the eastern Donetsk and
Kharkiv regions with the other, Olesska, in the western Lviv
region. "(The likely winners are) Shell for Yuzivska and Chevron
for Olesska," the source said.
President Viktor Yanukovich has improved relations with
Moscow, but Ukraine still hopes to develop its own reserves as
Russia has used gas supplies as a political weapon in dealings
with its smaller former Soviet neighbour in the past.
Ukraine has Europe's third-largest shale gas reserves at 42
trillion cubic feet (1.2 trillion cubic metres), according to
the U.S. state Energy Information Administration, trailing
France and Norway.
Exploiting the fields will require the drilling method known
as fracking, which helps companies to tap gas and oil from
previously inaccessible shale formations.
Ukraine's State Geological Service, which is more optimistic
that the U.S. EIA, estimates the reserves of the Yuzivska area
alone at 2 trillion cubic metres and those of Olesska at 0.8 to
The geological service has also said the Yuzivska area would
require $250-$300 million in exploration investment, while
Olesska would need $150-$200 million. Tender application fees
were $1.9 million for Yuzivska and $1.3 million for Olesska.
Apart from Shell and Chevron, Exxon Mobil and TNK-BP
bid for Yuzivska last month while Eni bid for
Western energy groups, especially in the United States, are
ahead of Russian firms in developing the controversial
technology of fracking (hydraulic fracturing).
Environmentalists say the practice, which involves injecting
chemical-laced water into underground wells, may contaminate
groundwater and trigger earth tremors.
However, Ukraine has no strong green movement that could put
real pressure on the government over the issue.
The winners of the tender will enter production sharing
agreements with state firm Nadra Ukrainy and SPK-GeoService, a
privately-owned Ukrainian company picked by the government as
its partner in a separate tender this year.
Ukraine's Ministry of Environment and Natural Resources
confirmed on Thursday it had picked the winners but declined to
name them, according to a report by Interfax news agency.
Ukraine imports about two-thirds of the gas it consumes from
Russia at a price which has been rising steadily for the last
few years and is expected to average about $415 per thousand
cubic metres this year.
Russia says it would give Ukraine a discount only if Russian
gas giant Gazprom is allowed to buy into Ukrainian gas
pipelines which tranship the bulk of Russian gas to Europe, a
trade-off Ukraine is reluctant to accept.
Talks on reviewing the price have lasted for over a year but
so far failed to produce any results, unnerving Russia's
European consumers who have in the past suffered from supply
disruptions due to conflicts between Moscow and Kiev.