U.S. oil and gas company Alpha Energy announced on Nov. 1 the signing of a memorandum of understanding with multinational oil corporation Halliburton to drill gas in Ukraine, but both companies struggle in the face of Ukraine’s state bureaucracy.
Halliburton and Alpha Energy might provide services worth more than $100 million to extract and scout gas fields near Ichnya, a small city in Chernihiv Oblast, 140 kilometers north of Kyiv.
Thomas Reed, the founder and CEO of Alpha Energy Group, told the Kyiv Post that the company is ready to start production as soon as the Ukrainian government grants permission to extract gas in its territory.
Ukraine lacks the modern technology for efficient gas production, which Western companies such as Halliburton and Alpha Energy could bring to Ukraine, but the government’s reluctance to sign deters investors.
“You can’t produce gas with paperwork,” he said. “You have to get in the field and drill physically.”
And the state’s decision drags on. The deadline to sign the exploitation permit between the two companies and the state approaches on Nov. 8, but Reed is afraid it won’t happen, which could jeopardize the entire project.
“This would be a very clear message to us that we are not welcome to do business in Ukraine,” Reed said.
Long-awaited decision
Alpha Energy’s negotiations to drill gas in Ukraine started in May 2020, and it’s been dragging on ever since.
“How do you ever get to a stage where you drill the well if all the permission and bureaucracy doesn’t let you (do it)?” Reed asked.
The Inter-Agency Commission, representing the government in the agreement, will meet on Nov. 8 to make the final decision on granting the permission, but Reed said he was skeptical about the result because of dissonant voices in the commission.
During a previous meeting on Oct. 26, an undisclosed member of the commission allegedly objected to granting the permission, saying that York Energy was not qualified and fails to meet the required financial guarantee.
Moreover, during another meeting held on Nov. 1, after the cooperation with Halliburton had been announced, most of the committee refused to vote, which would mean a potential refusal.
“It’s the same as no because it basically means there is not enough support to approve it,” Reed said.
A final refusal would repel potential foreign investors away if they see that two leading Western companies’ interest to develop oil and gas fields in Ukraine have been blocked by bureaucracy, he added.
Halliburton is the second-largest oilfield services company in the world, with a $3.9 billion revenue in 2021 so far.
“People are watching, and it would be very unfortunate if it doesn’t work out.”
Energy security
Ukraine has one of the largest reserve bases in Europe and can double gas production to 40 billion cubic meters by improving its equipment, which would leave 5-10 billion cubic meters of gas per year to export to other European countries, he said.
Achieving gas self-sufficiency is a question of national security and not a commercial issue, Reed said.
Ukraine’s gas production has been steady at some 20 billion cubic meters of gas per year for the past 25 years, but the country has vast untapped potentials in its offshore blocks as well as in the Black Sea.
Still, Ukraine continues to indirectly buy gas from Russia because local gas production is not sufficient to meet the energy need of the country.
“The idea that you are buying 10 billion cubic meters of gas from a country that’s occupying parts of your country is kind of crazy,” he said. “You are dependent on the occupiers for light and heat.”
Europe is going through an energy crunch with gas and electricity prices at record highs, while Russia has throttled the supply of gas to Europe while reducing gas transit through to use Ukraine.
Low volumes of gas have made the supply of natural gas in Europe so tight that the prices went up by almost 400 percent since the beginning of the year.
The launch of the controversial Nord Stream 2 pipeline that supplies Russian gas to Europe bypassing Ukraine would deprive the country of at least $1.5 billion in lost transit per year.
The Baltic Sea project was officially completed on Sept. 10 and Russia eagerly awaits Germany’s regulatory approval, suggesting that it could potentially solve the energy crisis.
The Kremlin’s declaration appears to confirm suspicions that Russia is leveraging supplies of gas in exchange for the completion of Nord Stream 2.
