The public company DK Ukrhazvydobuvannia and Shell, a global leader in carbohydrate mining, drilled their first probe hole in Kharkiv. Biliaivska-400 (that is the name) is the result of implementing of the two firms’ mutual agreement. The agreement provides for reconnaissance, exploration, and mining of carbohydrates in the compact sandstone bedrock with a total area of about 1,300 square kilometers. Both Shell and DK Ukrhazvydobuvannia have equal shares in the project. The deadlines for the completion of the first drilling are five or six months ahead. It will be a vertical hole with a projected depth of 5,250 meters. At the initial stage of reconnaissance and exploration two or three more probe holes are to be drilled within three or four years. By the end of this stage, Shell’s aggregate expenditure is expected to have reached 200 million dollars.
According to Ukraine’s President Viktor Yanukovych, who was present at the opening ceremony, such projects are extremely important since they enhance the nation’s energy independence. Besides, they are implemented with the use of environmentally friendly technologies.
“Our cooperation with Shell opens new opportunities for us in the sphere of gas mining, including non-conventional gas. Thanks to up-to-date technology and our partners’ investments, Ukraine will start mining its considerable resources of gas from compact sandstone bedrock, while Ukrhazvydobuvannia will gain such experience which will allow it to develop its potentiality in the future,” said Yurii Borysov, CEO, Ukrhazvydobuvannia, as he commented on the opening of the first drilling rig.
Yurii Boiko, Ukraine’s minister of energy and coal industry, remarked in his commentary to The Day that by the end of 2013 the government hoped to sign an agreement with Shell on joint development of the Yuzivka deposit. Overall, this project has ushered in an age of non-conventional gas mining in Ukraine, said the minister.
The declarations made by Ukrainian officials suggest that our country is on the verge of a new era, that of non-conventional gas mining. Eduard Stavytsky, Ukraine’s minister of environment and natural resources, promised that the next stage of distributing the “non-conventional resources” would follow soon. “We have already passed a resolution to sign three agreements in November (on Yuzivka, Olesko, and Skifske deposits) and virtually immediately [by the end of this year. – Author] to announce the next bidding. We will come up with a tangible result, and will immediately launch four more projects,” specified Stavytsky as he spoke about the development of non-conventional gas mining. In particular, the lots will include the Slobozhanske (Kharkiv oblast) and Foros gas deposits, as well as those on the Black Sea shelf, the shallow shelf of the Kerch area, and the inland deposit on the territory of three oblasts (Poltava, Dnipropetrovsk, and Donetsk). According to the minister, there already have been volunteers to invest in them. As a reminder, besides Shell, another company, Chevron, also has plans to extract Ukraine’s shale gas. Last May that firm won a tender for developing the Olesko deposit.
However, when asked by The Day about the prospects of non-conventional gas mining in our country, Graham Tiley, Country Chairman Shell Ukraine, would not adduce exact figures. Still, he emphasized that the successful implementation of gas mining projects at the Yuzivka, Olesko, and Skifske deposits would allow one to double or even triple Ukraine’s gas production in at least a decade.
This country could set a record, said Mykhailo Honchar, director for energy programs at Nomos Center, in an interview with The Day. But this will pose quite a challenge. The main obstacle is the fact that gas production in Ukraine has been falling for years, a slow but steady process. There are two chief reasons for that, according to Honchar.
The first reason has a historical background. “In the mid-1970s Ukraine was producing 68.5 billion cubic meters of gas. But as early as in the 1960s, a new oil and gas producing region was being gradually developed, and in the 1970s a definitive decision was taken concerning re-orienting investments from the traditional oil and gas producing regions, such as Ukraine, Azerbaijan, and the North Caucasus towards Western Siberia. Thus, gas production in Ukraine was no longer a priority even in Soviet time, so it was financed on leftovers,” says Honchar.
The other reason is that the now independent Ukraine failed to realize the importance of this industry, and thus never staked on it. A retrospect of two decades shows that the drop of production (to 16 billion cubic meters) began in the late 1990s. “Then the government thought better of it and started investing in reconnaissance, and it was eventually able to gradually restore production to 21.5 billion cubic meters in 2009. Given Ukraine’s average consumption level at 60 billion cubic meters, domestic production only makes up for one-third of it. Anyway, this figure keeps falling even today: in 2010, the production dropped to 20.5 billion cubic meters, so the rate of the decrease was one billion cubic meters annually. The current investment level cannot guarantee the current production level, let alone ensure growth,” complains Honchar.
He believes that an annual investment of at least one billion dollars is necessary for the growth in production. The NAK does not have the money. So this is mostly the investment coming from powerful private international companies, which will first of all go for non-conventional gas. According to Honchar, Ukraine’s allegedly most lucrative projects are the development of the Yuzivka deposit and the Black Sea shelf. He is less optimistic about shale gas deposits in western Ukraine, since this is where the Lublin Basin runs, just like in Poland. Meanwhile, Poland has already started the development of this deposit, which confirmed that the estimated shale gas reserve there is much lower than the previous forecasts had stated.
“Given that commercial feasibility of Ukraine’s non-conventional gas deposit is confirmed, and there are annual investments of at least one billion dollars, stable tax legislation in the oil and gas sector, and that Ukraine’s legal system functions again, by 2020 we could produce several billion cubic meters of non-conventional gas. Should these conditions be met, Ukraine could make a breakthrough in gas mining in the near future (2025-30): production figures will be measured in billions cubic meters, starting from mark 10 upwards,” predicts Honchar.
