* Olesska project has met local opposition in west Ukraine
* Chevron has sought to allay local fears over fracking
* Ukraine seeking gas independence from Russia
By Richard Balmforth
KIEV, Feb 19 Chevron remains optimistic
over prospects for a shale gas deal in Ukraine but talks with
the government which have already been extended cannot drag on
indefinitely, an executive with the U.S. company said on
Chevron is negotiating a production-sharing agreement for
shale exploration of the Olesska field towards Ukraine's western
borders with the European Union.
Royal Dutch Shell signed a $10 billion deal with
the government for exploration of the Yuzivska field in eastern
Ukraine last month.
The Chevron project, however, has run into vocal criticism
from local politicians and environmental lobby groups.
Reflecting how politically sensitive it remains, the Kiev
government has removed a self-imposed May deadline for
conclusion of the deal to allow itself more time.
Shale development is progressing slowly in Europe, where
Poland and Britain also have plans, yet it has already
transformed the U.S. energy market.
Shale has helped more than halve U.S. gas prices in the last
five years, offering companies there a steep advantage in energy
costs versus their European rivals.
The 5,260-square-kilometre Olesska field lies on a band of
shale stretching from the Baltic to the Black Sea, Chevron says.
Along with the Yuzivska field, it forms a core part of plans
to ease Ukraine's dependence on imported natural gas supplies
Chevron's country manager in Ukraine, Peter Clark, told
Reuters he remained optimistic over a deal and said Chevron was
"motivated" to reach agreement.
But he added: "You would think that if the negotiations have
not reached an agreement in a year, year and a half or two
years, I don't know what this time is, one side or another would
have to be impatient and say 'Well, it looks like we are not
going to get an agreement, let's stop wasting our time'."
Ukraine estimates potential reserves at Olesska at 0.8
trillion to 1.5 trillion cubic metres.
Clark himself declined to give estimates of commercial
potential or reserves of natural gas that could be trapped in
shale deposits deep under ground. Nor would he give details of
the agreement under discussion.
A signed deal would clear the way for exploratory drilling
needed to establish potential reserves and locate areas to be
avoided because of risks to the environment.
Political opposition to the deal, much of it led by the
powerful far-right nationalist Svoboda party, has complicated
The story was different in the eastern Donetsk and Kharkiv
regions, where local councils loyal to the ruling Party of the
Regions of President Viktor Yanukovich quickly approved the deal
Clark and outside experts hired by Chevron have met local
groups to try to allay fears of environmental damage from shale
exploration, which involves hydraulic fracturing, or "fracking",
which involves injecting water and chemicals into layers of rock
to release trapped gas.
The worry of environmental groups is the process could
trigger tremors or pollute groundwater, while industry officials
say the former risk would only arise if fracking occurs on a
Chevron's information campaign seeks to assure people about
the safeguards it has proposed against any such risk.
"I am hoping that there is (now) a more open attitude
towards looking at the facts rather than some of the scare
stories that have been put out there. I think it is going to be
a continuing discussion (with local groups)," he said.
Chevron emphasises local benefits such as road improvements
and new support services that would create hundreds of jobs.
Local support for the project's success is vital, he said.
"What we want is for the population as a whole ...to agree
that this is a good project and will bring benefits. You won't
get 100 percent to agree, but I think you need a strong majority
before it is going to be feasible for us to operate," he said.
"Chevron is motivated to reach agreement ... (But) at some
point my boss, his boss, all the way up to the chairman and
stockholders are going to say 'Well, if we are not making any
progress let's go home. Let's not continue to spend money for
something we are not going to conclude'."
Legislation requires the blessing of the regional authorities
for any agreement to be effective. "As far as I know, it (the
text of a proposed profit-sharing agreement) has not been sent
to the regional authorities," Clark said.
(Writing by Richard Balmforth; editing by Jason Neely)