Can LNG Help Ukraine?

For years Ukraine has had to walk a tightrope in its relations with Russia to ensure a steady supply of gas to keep it warm during harsh Eastern European winters. But in the past decade, political and pricing disputes have cut off the supply, and Ukraine has been scrambling to find alternate sources.

Ukraine says it’s reduced its reliance on Russian gas, getting no more than one third of the fuel from the Moscow’s state-run Gazprom so far this year because it’s found less expensive gas from its European neighbors. That import rate, however, may not be enough for the coming winter.

Enter Frontera Resources Corp., a Houston-based company that’s considering shipping liquid natural gas (LNG) to Ukraine. Frontera and Ukraine’s state-run energy company Naftogaz have signed a memorandum of understanding (MOU) to explore for gas and produce it in Ukraine, and to discuss shipping LNG to Ukraine from nearby Georgia.

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In November, Georgia opened a pipeline terminal in Poti, on the Black Sea, as a transit point to provide gas to the European market. It’s part of a network to ship gas from Azerbaijan’s Shah Deniz gas field in the Caspian Sea that’s expected to ship 560 cubic feet of gas per year to its customers. The first countries receiving the fuel will be Georgia and Turkey in 2018 and the rest the next year.

Meantime, it is just as easy for Frontera to use Georgia as a base to ship LNG to Ukraine, also with a large Black Sea coast. And perhaps not all of that oil would have to come from the Shah Deniz field because the Texas energy company has identified 12.9 trillion cubic feet of prospective natural gas resources in Georgia itself.

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“This important MOU reflects Frontera’s ongoing focus to progress its Greater Black Sea Strategy by pursuing new growth throughout a region that contains significant underdeveloped and under-explored oil and gas potential,” Frontera Chairman and CEO Steve Nicandros said in a statement.

“I strongly believe that our closer work with Naftogaz will open avenues to strategically supply Ukraine with LNG from across the Black Sea,” Nicandros said. “This will serve to diversify the country’s supply of natural gas and, by doing so, bring Georgia to the forefront as a strategic supplier of natural gas to Europe.”

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The supply of Russian gas has been of growing concern to Europe over the past few years. So far, customers in the European Union have received about 30 percent of their gas from Gazprom, half of it through pipelines running through Ukraine. That supply has been interrupted three times – in 2006, 2009 and 2014 – because of disputes between Kiev and Moscow.

And on July 1, Gazprom cut off Ukraine’s fuel supply in yet another disagreement over pricing. But so far the flow of gas to the rest of Europe hasn’t been affected.

Because of such uncertainty, the promise of the Shah Deniz gas flowing through Georgia, as well as a new-found gas reserves in Georgia itself, should ease the energy concerns of both Ukraine and the EU.

By Andy Tully of Oilprice.com

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