US Fracking Its Way to Ukraine

US interest in Ukraine’s energy resources, a subject that has gone almost unreported but which has been discussed previously, carries on unabated.

Last week Petro Poroshenko, Ukraine’s President, voiced hopes for cooperation with the US in shale gas development. And during her trip to Kiev, US Commerce Secretary Penny Pritzker said the US would assist Ukraine in developing its energy sector.

The key problem however remains as before.  For an oil and gas industry, having the main fields stuck in a war zone just about tops the list of worst-case scenarios. 

The two biggest investors in Ukrainian energy remain Royal Dutch Shell and Chevron. Shell has a hydrocarbons production-sharing agreement with the Ukrainian government at the Yuzivska field, which lies across Donetsk and Kharkiv regions of Ukraine, slap in the middle of the war zone.  As a result Shell has been forced to put shale projects on hold since February 2014.  Chevron was luckier, having signed a shale gas production-sharing agreement for the Olesska field, which is in western Ukraine and therefore has been unaffected by the conflict so far. 

All this is happening under the slogan of reducing energy dependence on Russia. Supposedly the American shale gas revolution model will help Ukraine achieve that. The US State department acts as the main promoter of shale gas, selecting countries and “helping them understand” their shale gas potential. This noble mission, also supposedly aimed at reducing CO2 emissions, is called Unconventional Gas Technical Engagement Program (UGTEP)

According to the US Energy Information Administration, Ukraine has Europe’s third-largest shale gas reserves at 42 trillion cubic feet.  Shell and Chevron are supposed to help Ukraine double its natural gas output.

Meanwhile, apart from controversy over its environmental impact, shale gas development stirs substantiated concerns about the price to be paid for achieving the promised "energy security". The reality of shale gas development is uncertain because of the difficulty of accurately assessing both resources and future achievable output.  Already there are fears that expectations of a shale gas bonanza for Ukraine may be overly-optimistic.  Technical problems are also coming to the fore.  Shell is finding that local products are incompatible with its own equipment.

As for the role of western energy companies and their US backers, it is interesting how shale gas missionaries seem to turn up at the right place, at the right time, in ways that ultimately suit themselves.  Perhaps Ukrainians might care to remember that the goal of private companies is profits — not their host country’s energy independence.


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