Ukraine, which is heavily dependent upon Russia for its current natural gas needs, has the capacity to become self sufficient, says former Alberta Premier Ed Stelmach.
It could do this by developing its shale gas reserves, extracting coal bed methane and improving its own existing gas production wells, he told Ukrainian News in an exclusive interview on Jan. 18 from Kyiv, where he was attending the Natural Gas and Ukraine’s Energy Future conference co-hosted by the Massachusetts-based Cambridge Energy Research Associates (CERA) and Ukraine’s Ministry of Energy and Coal Industry.
“This is a huge, huge milestone for Ukraine. If they can at least manage their natural gas and get the formula right and the predictability in their regulatory regime, I am positive that we’re going to see significant investment in exploration,” Stelmach said.
Shale is one of the most common sedimentary rocks in the world and it is primarily composed of clay and fragments of other minerals such as quartz and calcite. Shale can be the source, reservoir and the seal for natural gas. Shale formations normally have low permeability (limited ability for gas or fluids to flow easily through the shale formation) and normally require stimulation techniques (such as fracturing) to economically produce shale gas. Shale gas is natural gas that is attached to, or “absorbed” onto, organic matter or is contained in thin, porous silt or sand beds inter-bedded in the shale.
Ukraine has plentiful shale gas reserves and making the country self-sufficient in gas, would take an investment of $10 billion each year for five years. Ukraine’s state gas company Naftogaz Ukraine does not have the financial resources available for such an investment because they have a two-tiered gas pricing policy, often selling it to resident consumers at a loss because of social obligations, explained Stelmach, whose grandfather emigrated to Canada from what is now Lviv Oblast in 1898.
Foreign investment is needed, but in order to attract this, Ukraine has to establish a transparent and predictable regulatory regime, he added. Currently only the big players like Exxon, Mobil and Shell have expressed interest because of the regulatory regime.
Another problem facing Ukraine’s development of its shale gas reserves are environment concerns and conflicts with regional authorities
One of the largest reserves of shale gas in Ukraine is the Olesko field, which covers over 6000 square kilometers in the Lviv and Ivano-Frankivsk region, according to a Jan. 18 report by Radio Svoboda. According to experts, this area has reserves of about 170 billion cubic meters of shale gas.
However, Lviv Oblast officials have blocked development partially because Naftogaz has not transferred the $127 million in lease money to the oblast for infrastructure and because of environmental concerns.
Stelmach says he advised the Ukrainian government to use third parties, namely scientists to explain the process in a transparent manner as Alberta does. There are a lot of misconceptions about shale gas extraction and coal bed methane extraction in Ukraine, he said. In particular, people believe that id wells are drilled they will put methane into the mines, when the reverse is true. Drilling brings the methane gas to the surface making the mine safer.
Stelmach also told the conference about Alberta’s shale gas technology which is the most modern in the world.
Ukraine imports most of its gas from Russia and current talks over pricing are deadlocked. Ukraine pays $416 per thousand cubic meters for natural gas with Russia and is contractually obligated to buy 40 billion cu. m. a year.
By contrast, in Alberta, where gas prices fluctuate according to demand and weather, the price on Jan. 18 – the coldest day of the year – when temperatures dropped to below 35 degrees Celsius, was $2.59 per gigajoule, which is the equivalent of $100 per 1,000 cu. m.
Russia has demanded control of Ukraine’s gas transit pipeline to Europe in return of lowering the price.
The conference, held Jan. 18-19, was the culmination of an intensive six-month research program and dialogue with the key stakeholders of Ukraine’s natural gas sector. Participation was limited and by invitation only.
Stelmach was invited by CERA in November 2011, cleared his visit with the ethics commissioner and appeared as an individual, not a representative of government.
Other speakers included Mykola Azarov, Prime Minister of Ukraine; Yuriy Boyko, Minister of Energy and Coal Industry of Ukraine; Christian Barkovic, VP Exploration for Russia, the Caspian region and Ukraine, Shell Oil; Cristobal Burgos, Senior Advisor, EU Directorate General for Energy; Steven R. Mann, Senior Counselor for International Government Relations; Alastair McBain, Chief Executive Officer, Arawak Energy; Bertrand Pallieres, CEO, Cadogon Petroleum plc; Edward Rendell, Former Governor of Pennsylvania, and Daniel Yergin, Executive Vice President, IHS CERA Chairman.
Marco Levytsky is the editor and publisher of Ukrainian News, an independent bi-weekly newspaper based in Edmonton and distributed across Canada.
