Ukraine moves closer to $10 bln shale gas deal with Shell

Wed Jan 16, 2013 2:25pm GMT

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* Ukraine says Shell estimates investment at $10 bln-$50 bln

* Project is key to easing dependence on Russian gas imports

DONETSK, Ukraine Jan 16 (Reuters) - Ukraine moved one step closer to a breakthrough shale gas deal with global energy major Royal Dutch Shell on Wednesday after local authorities in the eastern Donetsk region approved a planned production sharing agreement.

The former Soviet republic, which is said to have Europe's third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic metres) and wants to end reliance on Russian natural gas supplies, chose Shell last May as a partner to develop the Yuzivska shale gas field.

Deputies of the Donetsk regional council voted to approve the deal with Shell, removing one of the final hurdles to an agreement.

Shale gas exploration requires a process called "fracking" in which fluid is injected at high pressure into beds of rock, often deeply situated in the ground, to access gas reserves trapped there.

"If exploration is successful in the Yuzivska area, we will be able to produce a few billion cubic metres (bcm) of gas per year in just five-six years and eight to 10 bcm in 10 years," Environment and Natural Resources Minister Oleh Proskuryakov told the council.

"At its peak, in 13-15 years, annual production may exceed 20 bcm. This will not only strengthen our energy independence but will also significantly reduce gas prices."

Ukraine currently pays about $430 per thousand cubic metres of Russian gas under a 10-year deal signed in 2009, a price it calls exorbitant.

"Secondly, the Yuzivska area production sharing agreement is the biggest project in Ukraine that will attract tens of billions of dollars in investment," Proskuryakov said.

"Shell sees investment at $10 billion under the most likely scenario and over $50 billion under the optimistic scenario."

Proskuryakov had earlier said his ministry expected to finalise and sign the deal in the first quarter of this year.

Only France and Norway have bigger estimated shale gas reserves than Ukraine in Europe.