Shale Gas: Market Opportunities and Challenges in the EU and Ukraine

Oleksii Leshchenko, Gorshenin InstituteBrussels, Belgium

December 7, 2011

Ukraine: Dependence from energy imports from Russia

2005

2006

2007

2008

2009

2010

2011

(e

st.)

ImportImported 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

TransitTransit 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/aMinStat, Expert assessments

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

Shale Gas Basins of Eastern Europe

Source: Advanced Resources International, Inc.

Shale gas in UkraineDniper –

Donets basin, 1.34 trillion m3

Lublin Basin (Poland-Ukraine),

1.4-4.172 trillion m3

Source: Advanced Resources International, Inc.

• 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

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

Exploration of shale gas in Ukraine

Shale gas break-even price vs. market gas price, $/1000 m3

0

50

100

150

200

250

300

350

400

Germany France Poland USA Ukraine

Shale gas break-evеn price range

Market gas price range 2010-2011

Source: SBC Analysis

Challenges. Legislation• Registering concessionIn 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

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