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Major shale gas deal in Ukraine

Ukraine took its first major step away from dependency on Russian gas imports when it signed a $10 billion (€7.42bn) shale gas deal with Royal Dutch Shell. The 50-year production sharing agreement, signed on the sidelines of the World Economic Forum in Davos, marks the biggest contract yet to tap shale gas in Europe and the largest foreign investment in Ukraine.

Disputes between Kiev and Moscow seriously disrupted Russian gas flows via Ukraine in 2006 and 2009, with European Union members Bulgaria and Slovakia left without energy in the depths of winter.

They remain at odds over the terms of a 2009 Russian supply deal brokered by former Prime Minister Yulia Tymoshenko, for which she is serving a jail sentence.

Ukraine is said to have Europe’s third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic metres), according to the US Energy Information Administration.

Poland too is looking to tap shale to reduce its Russian gas imports, but a massive downward revision in its estimated reserves and a decision by ExxonMobil to halt exploration dashed initial hopes for Europe’s most ambitious shale exponent.

Production in Ukraine is several years off and will depend on results from 15 test wells. The Yuzivska field could produce 20 billion cubic metres of gas in 2018, Fuel Minister Eduard Stavitsky said. “According to Shell’s optimistic scenario about 20 billion cubic metres could be extracted annually; at the very least seven to eight billion,” Stavitsky, quoted by Interfax, said in Davos.

If the top forecast were fulfilled, “this will completely solve the problem of the (gas) shortfall in Ukraine,” he said, referring to the huge amounts of gas Ukraine imports from Russia.

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