Shale Gas: Market Opportunities and Challenges in the EU and Ukraine
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This document summarizes challenges facing the development of shale gas in Ukraine. It notes that Ukraine imports over half its gas from Russia at high and rising prices. Ukraine has significant untapped shale gas reserves, especially in the Dnieper-Donets Basin and Lublin Basin shared with Poland, but faces legislative challenges. These include a complicated licensing process, price ceilings, small plot sizes, short agreement terms, and reluctance to use production sharing agreements, which could discourage foreign investment in shale gas exploration and production. Overcoming these challenges could help Ukraine boost domestic gas production and reduce dependence on Russian imports.
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Shale Gas: Market Opportunities and Challenges in the EU and Ukraine
- 1. Shale Gas: Market Opportunities and Challenges in the EU and Ukraine Oleksii Leshchenko, Gorshenin Institute Brussels, Belgium December 7, 2011
- 2. Ukraine: Dependence from energy imports from Russia (est.) 2005 2006 2007 2008 2009 2010 2011 Import Imported volume, bill. m3 55.8 53.3 50.1 48 26.8 36.5 36 Gas price ($/1000 m3) 44-80 95 130 179.5 232.5 292 350 Cost, bill. $ 3.2 5.1 6.5 8.6 6.24 10.83 12.6 Transit Transit volume to Europe, bill. m3 121.5 113.8 112.1 116.9 92.8 113.9 113 Transit volume to CIS, bill. m3 14.9 14.7 3.1 2.7 3 3 n/a Transit price ($/1000 m3/100 km) 1.09 1.6 1.6 1.7 1.7 2.84 2.84 Cost of transit services, bill. $ 1.5 2.2 2.1 2.34 1.88 3.62 n/a MinStat, Expert assessments
- 3. Ukraine: Dependence from energy imports from Russia • Energy imports accounts for 17% of the total Ukrainian imports and 29% of imports from Russia • Annual consumption – 55 bill. m3, imports - 33 bill. m3 • Domestic production – 20-21 bill. m3
- 4. Shale Gas Basins of Eastern Europe Source: Advanced Resources International, Inc.
- 5. Shale gas in Ukraine Dniper – Donets basin, 1.34 trillion m3 Lublin Basin (Poland- Ukraine), 1.4-4.172 trillion m3 Source: Advanced Resources International, Inc.
- 6. Shale gas in Ukraine • 4th-largest in risked GIP reserves of shale gas in Europe (excluding the Balkans, Italy and the Pyrenees): – 48 Tcf of gas in-place (risked) in the prospective area of the Dnieper-Donets Basin – 149 Tcf of gas in-place (risked) in the Lublin Basin – Of this 197 Tcf, according to estimations 42 Tcf could be ultimately technically recoverable
- 7. Exploration of shale gas in Ukraine • Signed five memoranda with foreign companies for cooperation in the field of shale gas production (Shell, ExxonMobil, Chevron, Eni, Eurogas) • Till the end of 2012 Ministry of natural resources is planning to receive independent assessment of shale gas reserves in Ukraine • The first tenders for exploration and development of individual plots will take place in the coming months (according to the officials) • In 2013 may be drilled the first wells • In 3-5 years the first commercial gas can be produced • Shell predicts that by early next decade, SG production will reach 15-20 billion cubic meters per year
- 8. Shale gas break-even price vs. market gas price, $/1000 m3 400 Shale gas break-evеn price range 350 Market gas price 300 range 2010-2011 250 200 150 100 50 0 Germany France Poland USA Ukraine Source: SBC Analysis
- 9. Challenges. Legislation • Registering concession In Poland registering a concession and getting an exploration license is done through the Energy Ministry and takes approximately three months; it can take a year or more in Ukraine and it is a complicated process involving several ministries and departments • Price ceilings on gas sales. Subsidies for individual gas consumers (population, metallurgical, chemical companies) New pricing model for Russian gas may reduce the price Ukraine pays for gas, and create a domestic price ceiling for independent producers • Marginal area of the plots is only 500 m2 In Poland - 3.5-4 thousand km2 • Short term of the agreements Shell intended to invest in the segment if bigger areas are offered for production and license periods are lengthened and tax breaks introduced • Dislike of Ukrainian authorities to production sharing agreements (PSA) Only one PSA has been concluded with Vanko Prikerchenskaya (2006), and then it caused a serious conflict, not settled yet • Free access to the gas transportation system and gas storage
- 10. www.gorshenin.eu