In bid for energy independence, Ukraine signs $10B shale gas bid

Ukraine signed a $10 billion shale gas production-sharing agreement with U.S. oil giant Chevron on Tuesday, another step in a drive for energy independence from Russia.

The deal to develop its western Olesska field followed a similar shale gas agreement with Royal Dutch Shell in January and boosts Ukraine's leadership at a time of fraught relations with Moscow over gas supplies.

"The agreements with Shell and Chevron ... will enable us to have full sufficiency in gas by 2020 and, under an optimistic scenario, even enable us to export energy," President Viktor Yanukovich told investors shortly before the signing.

Ukrainian energy independence would make it more difficult for Russia to exert pressure on Ukraine as well as the rest of Europe. In the winters of 2006 and 2009 when Ukraine and Russia clashed over oil prices, Moscow halted deliveries not only to Ukraine but to the rest of Europe.

The highest end of expectations for Olesska's potential reserves would match around three years of European Union gas demand, but similarly sunny hopes for shale reserves in neighboring Poland have been very sharply downsized.

Shale development in Europe is far behind the booming U.S. sector and progress is patchy, because of the practices used to unearth oil and gas deposits.

Fracking, the popular term for hydraulic fracturing, is the process in which pressurized water mixed with sand and chemicals are pumped into earth and rock to create and widen fractures and extract hard-to-reach deposits.

The U.S. Environmental Protection Agency will release an in-depth study of the environmental effects of fracking next year, but has already indicated that among a host of other concerns, the practice may contaminate drinking water supplies and pollute the air.

Fracking has not only faced opposition from a number of environmentalists in the U.S., but also in Eastern Europe, where some locals are wary that American energy companies are importing heavily disputed extraction techniques.

Chevron pulled out of a shale exploration tender in Lithuania and has suspended work at a Romanian shale well after local protests.

Ukraine Energy Minister Eduart Stavytsky, who signed the deal with Chevron executive Derek Magness, set it in the context of a high price Ukraine pays Russia for its gas.

"This is one more step towards achieving full energy independence for the state. This will bring cheaper gas prices and the sort of just prices which exist (elsewhere) in the world," he said.

Ukraine pays $400 per thousand cubic meters for Russian gas under a 2009 10-year agreement. Kiev has failed to re-negotiate its terms with Moscow.

The agreement with Chevron, to extend for 50 years, foresaw an initial investment of $350 million by the U.S. major in exploratory work over two or three years, Stavytsky said, aimed at establishing the commercial viability of shale reserves in the 2,000-square mile Olesska, part of a band of shale which stretches from the Baltic to the Black Sea.

Earlier government figures set total investments, including extraction after exploratory drilling, at around $10 billion.

Russia is angry over Ukraine's plans to sign a landmark agreement with the European Union, which will mark a shift away from Russia's sphere of influence.

Late last month, Russia's gas export monopoly Gazprom demanded that Ukraine pay a $882 million overdue gas bill urgently.

Stavytsky said Tuesday that Ukraine had already begun to settle the outstanding bill but gave no details.

Gazprom spokesman Sergei Kupriyanov said his company had recently received $9 million in payments from Naftogaz Ukraine. "It's just a drop in the ocean," he said.

With Ukraine also a transit route for Russian gas to Europe, rows in the past which have led to disruption for European consumers.

Russian Prime Minister Dmitry Medvedev has since said he sees no reason for Moscow to cut gas supplies to Ukraine over the unpaid bill for now and has played down talk of an imminent "gas war" that might disrupt flows to Europe.

Al Jazeera and Reuters