Ukraine opens door to energy majors

Jul 08, 2011 12:00 AM

Alternative energy sources could help break dependence on Russia.

Ukraine is stepping up efforts to attract billion-dollar investments and expertise from the world’s largest energy companies, hoping they can diversify energy supplies for an economy that is being squeezed by increasingly expensive fuel imports from its main supplier, Russia.

Ukraine’s government formally launched a tender in which it asked potential investors to prepare feasibility studies on construction of the nation’s 1st liquefied natural gas plant. Given that Ukraine has long kept major energy investors out, scepticism runs high that current plans could not materialize.

Vladyslav Kaskiv, head of Ukraine’s State Agency for Investment and National Projects, put aside such concerns, saying: “We plan to choose an investor by the end of 2011.” The announcement comes as Ukraine’s government also calls investors in to unearth potentially large shale gas reserves. Sources said Royal Dutch Shell, Chevron, ExxonMobil and TNK-BP are among companies eyeing exploration and production licenses.

Earlier, parliament adopted legislation on production sharing agreements set by them as a precondition for investing. Deputy Energy Minister Vadym Chuprun said that “ExxonMobil, Halliburton, ConocoPhillips, Shell and other companies” have “responded” positively to Ukraine’s proposal for them to invest into exploration ventures.

“According to US Geological Survey studies, we have at least 1.5-2.5 tn cm of shale gas. This number is approximate and will obviously grow,” added Chuprun. The reserves are believed to be located in 2 major pockets: near Ukraine’s border with Poland and the east.
If untapped, these gas fields, along with offshore prospects on Ukraine’s Black Sea coast, could significantly diversify national energy supplies, cutting into purchases from Russia’s Gazprom.
Ukraine is currently Gazprom’s largest customer, importing between 40-50 bn cm of gas annually in recent years. Ukraine, long dependent on Russia for fuel, is seeking new supplies after its northern neighbour quadrupled prices since 2004.

Referring to the liquefied natural gas project and the potential of shale gas development in Ukraine as well as nearby Poland, Kaskiv said: “These projects could help Europe at large diversify energy supplies and get energy at more competitive prices.”
The world’s largest energy companies have long eyed opportunities in Ukraine, but local officials have largely kept them out, preserving control over the domestic energy sector in the hands of oligarchs and Russian groups.

Recently, Ukraine is expressing a “clear intention to open up the energy sector to reputable international companies,” according to Jorge Zukoski, President of the American Chamber of Commerce in Ukraine.
“We are talking about multi-billion investments,” said Zukoski. TNK-BP said it alone planned to invest $ 1.8 bn in Ukraine shale gas exploration.
“We hope to see the 1st tender announcement by the end of 2011,” said Zukoski, adding that the arrival of international energy groups could “create a better geopolitical positioning” for Kyiv and become a “revenue booster” for cash-strapped state coffers.

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