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The Downside Risk For Oil Prices Is Undeniable

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Shell to Drill First Wells in $10 Billion Ukraine Shale Gas Project

At the beginning of the year Ukraine took its first major steps to reducing its dependence on Russian natural gas imports, by signing a $10 billion shale gas deal with Royal Dutch Shell. Shell have now announced that they plan to begin exploratory drilling at the Yuzivska field, in the eastern region of the country, next year.

Graham Tiley, the manager of Shell Ukraine, said that the first phase of exploration will see a total of 15 wells drilled across the 8,000 square kilometre field.

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For years Ukraine has been heavily dependent on Russian natural gas imports, for which it is charged way above market prices. The high gas prices have been a source of conflict between the two nations for years, and finally fed up with the relationship, Ukraine has decided to look at the development of its own domestic sources of natural gas; both on and offshore.

As well as the deal with Shell, the Ukraine government also signed a shale gas production sharing agreement with Chevron Corp. yesterday, and is hoping to finalise a deal for offshore exploration in the Black Sea by the end of the year with a group led by Exxon Mobil Corp.

Tiley said that “if you look across all these different projects, and if you look at interests of not just Shell but major oil and gas companies, you would say Ukraine has a good chance to boost its output. The sector has been under-invested and I assume over time the domestic production will increase.”

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The US EIA has estimated that Ukraine could contain up to 42 trillion cubic feet of shale gas, giving it the third largest reserves in Europe. However as few test wells have been drilled, actually production levels are still unknown.

Tiley commented that “until we get out there, drill some wells and test them, we simply won’t know how much of the area is going to be commercially productive. Right now the testing phase will take some months before we have some results, and that will be only from one well.”

Shell has already completed drilling its first well in the Kharkiv region, in a joint venture with the country’s state owned company DK Ukrhazvydobuvannya, with two more wells expected for next year.

By. James Burgess of Oilprice.com



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