Kyiv thinks it just might be sitting on the answer to the problem of reducing Ukraine's energy dependence on Russia: an estimated 1.2 trillion cubic meters of shale-gas reserves, the third-largest such deposits in Europe.
On January 24, Ukraine is expected to sign a production-sharing agreement (PSA) with oil major Royal Dutch Shell worth an estimated $10 billion to develop the Yuzivska shale-gas field in eastern Ukraine using the controversial new technology of hydraulic fracturing, or fracking. Shell has not confirmed the signing, which could take place on the sidelines of the World Economic Forum in Davos, Switzerland.
Kyiv selected Chevron as a partner for a similar project in western Ukraine in May 2012.
The Ukrainian cabinet signed off on the agreement on January 23.
Danila Bochkarev, a research fellow with the EastWest Institute in Brussels, says that shale gas and other unconventional forms of natural gas could play a big role in Ukraine's future.
"Unconventional gas is not only shale. Also coal-bed methane and tight gas [extracted from sandstone] are quite important," Bochkarev says. "For instance, we can see that Ukraine's gas reserves are between 1.2 tcm [trillion cubic meters] and 2.8 tcm, depending on the estimates -- and we are talking here about [all] unconventional-gas reserves.
"And taking into account that Ukraine imports between half and two-thirds of its gas needs," he says, "this can be quite an important source of natural gas and energy for the country."
No Quick Fix
Reducing energy imports from Russia is crucial for Ukraine, as Moscow has been aggressive in using that dependence to pressure Kyiv politically. Most importantly, Moscow has told Kyiv it will only reduce gas prices if Ukraine agrees to join the Russia-led Eurasian Customs Union, which would effectively mean abandoning hopes for integration with the European Union.
But the Yusivska shale-gas field is by no means a quick fix or a total solution. In Kyiv's optimistic scenario, the field will be producing 8-10 billion cubic meters (bcm) in about 10 years and as much as 20 bcm annually within 15 years.
By comparison, Ukraine's near-depleted conventional-gas fields currently produce about 20 bcm a year, a figure that Kyiv-based energy analyst Pavlo Zahorodniuk expects will decline by one-quarter over the next decade. It is a far cry from the 1960s and '70s when Ukrainian gas heated homes in Moscow.
There are also doubts whether Kyiv's timetable is realistic. The regulatory environment for both production-sharing agreements (PSA) and for non-PSA production remains unclear and incomplete. The costs of drilling wells in Ukraine are still unknown.
In addition, locals in Kharkiv and Donetsk oblasts are becoming increasingly vocal about the possible environmental consequences of fracking. The Kharkiv branch of the nationalist Svoboda political party is preparing a court challenge to the project, arguing that it threatens to contaminate groundwater and farmland.
"The root of the problem is that, without public hearings and without ecological assessments, we are seeing an effort by a foreign company and its Ukrainian partner to take over the opportunity to extract shale gas," says Ihor Shvaika, a Svoboda deputy in parliament.
Gazprom Accusations
Environmentalist Oleksiy Vasylyuk tells RFE/RL's Ukrainian Service that the amount of shale gas that can be produced will not be sufficient to replace Ukraine's imports from Russia and that there is a real danger that "because of groundwater pollution, we will soon have to import drinking water as well."
Some observers believe that Russia's Gazprom is fanning the concerns about fracking both in Ukraine and in Poland in order to prevent the speedy development of these reserves.
But Ukraine is not relying exclusively on unconventional gas to boost its leverage with Russia. Prime Minister Mykola Azarov said last week that Ukraine managed to reduce its consumption of Russian gas by 10 bcm in 2012 through improved efficiency. The metals industry alone was able to reduce consumption by 25 percent.
In addition, Energy Minister Eduard Stavytskyy announced earlier this month that Ukraine was negotiating with German energy giant RWE to import up to 12 bcm of gas through Poland and Slovakia. Ukraine currently buys just 0.06 bcm of gas from RWE annually.
In any event, Ukraine's push to develop unconventional gas resources will undoubtedly affect the energy picture in Eastern Europe, analyst Bochkarev says. He compares the situation in Ukraine with that in neighboring Poland, which is also striving to break its dependence on Russian gas.
"If you manage to produce any substantial amount of gas at home and it is cheaper than imported gas, that is very good for you because it puts you in a strong negotiating position and you can renegotiate your contracts," he says. "While it is too early to say, I have the impression that Poland's ability to get concessions from Gazprom was also due to the fact that they might have quite a substantial shale-gas production."
On January 24, Ukraine is expected to sign a production-sharing agreement (PSA) with oil major Royal Dutch Shell worth an estimated $10 billion to develop the Yuzivska shale-gas field in eastern Ukraine using the controversial new technology of hydraulic fracturing, or fracking. Shell has not confirmed the signing, which could take place on the sidelines of the World Economic Forum in Davos, Switzerland.
Kyiv selected Chevron as a partner for a similar project in western Ukraine in May 2012.
The Ukrainian cabinet signed off on the agreement on January 23.
Danila Bochkarev, a research fellow with the EastWest Institute in Brussels, says that shale gas and other unconventional forms of natural gas could play a big role in Ukraine's future.
"Unconventional gas is not only shale. Also coal-bed methane and tight gas [extracted from sandstone] are quite important," Bochkarev says. "For instance, we can see that Ukraine's gas reserves are between 1.2 tcm [trillion cubic meters] and 2.8 tcm, depending on the estimates -- and we are talking here about [all] unconventional-gas reserves.
"And taking into account that Ukraine imports between half and two-thirds of its gas needs," he says, "this can be quite an important source of natural gas and energy for the country."
No Quick Fix
Reducing energy imports from Russia is crucial for Ukraine, as Moscow has been aggressive in using that dependence to pressure Kyiv politically. Most importantly, Moscow has told Kyiv it will only reduce gas prices if Ukraine agrees to join the Russia-led Eurasian Customs Union, which would effectively mean abandoning hopes for integration with the European Union.
Taking into account that Ukraine imports between half and two-thirds of its gas needs, this can be quite an important source of natural gas and energy for the country.Danila Bochkarev, EastWest Institute
But the Yusivska shale-gas field is by no means a quick fix or a total solution. In Kyiv's optimistic scenario, the field will be producing 8-10 billion cubic meters (bcm) in about 10 years and as much as 20 bcm annually within 15 years.
By comparison, Ukraine's near-depleted conventional-gas fields currently produce about 20 bcm a year, a figure that Kyiv-based energy analyst Pavlo Zahorodniuk expects will decline by one-quarter over the next decade. It is a far cry from the 1960s and '70s when Ukrainian gas heated homes in Moscow.
There are also doubts whether Kyiv's timetable is realistic. The regulatory environment for both production-sharing agreements (PSA) and for non-PSA production remains unclear and incomplete. The costs of drilling wells in Ukraine are still unknown.
In addition, locals in Kharkiv and Donetsk oblasts are becoming increasingly vocal about the possible environmental consequences of fracking. The Kharkiv branch of the nationalist Svoboda political party is preparing a court challenge to the project, arguing that it threatens to contaminate groundwater and farmland.
"The root of the problem is that, without public hearings and without ecological assessments, we are seeing an effort by a foreign company and its Ukrainian partner to take over the opportunity to extract shale gas," says Ihor Shvaika, a Svoboda deputy in parliament.
Gazprom Accusations
Environmentalist Oleksiy Vasylyuk tells RFE/RL's Ukrainian Service that the amount of shale gas that can be produced will not be sufficient to replace Ukraine's imports from Russia and that there is a real danger that "because of groundwater pollution, we will soon have to import drinking water as well."
Some observers believe that Russia's Gazprom is fanning the concerns about fracking both in Ukraine and in Poland in order to prevent the speedy development of these reserves.
But Ukraine is not relying exclusively on unconventional gas to boost its leverage with Russia. Prime Minister Mykola Azarov said last week that Ukraine managed to reduce its consumption of Russian gas by 10 bcm in 2012 through improved efficiency. The metals industry alone was able to reduce consumption by 25 percent.
In addition, Energy Minister Eduard Stavytskyy announced earlier this month that Ukraine was negotiating with German energy giant RWE to import up to 12 bcm of gas through Poland and Slovakia. Ukraine currently buys just 0.06 bcm of gas from RWE annually.
In any event, Ukraine's push to develop unconventional gas resources will undoubtedly affect the energy picture in Eastern Europe, analyst Bochkarev says. He compares the situation in Ukraine with that in neighboring Poland, which is also striving to break its dependence on Russian gas.
"If you manage to produce any substantial amount of gas at home and it is cheaper than imported gas, that is very good for you because it puts you in a strong negotiating position and you can renegotiate your contracts," he says. "While it is too early to say, I have the impression that Poland's ability to get concessions from Gazprom was also due to the fact that they might have quite a substantial shale-gas production."