Shell and Ukraine Finalize $10 Billion Shale Gas Contract

Ukraine has very nearly stepped out from under the shadow of Russia and its dependency on Natural gas supplies from Gazprom, by today signing a $10 billion deal to develop domestic shale gas in conjunction with Royal Dutch Shell (NYSE:RDS.B)

In both 2006 and 2009 Russia and Ukraine cashed over the prices that Russia was charging, leading to severe disruptions to gas flowing to, and through, the Ukraine. Bulgaria and Slovakia were left without gas supplies in the middle of winter as Russia stopped its gas flow through Ukrainian pipelines. A new long term contract between Ukraine and Russia, signed by Yulia Tymoshenko in 2009, for the supply of natural gas has also been a huge point of conflict, as Ukraine believes the terms are hugely exploitative; Yulia Tymoshenko is serving time in jail for abuse of office over the terms of the contract that she agreed to and signed.

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Shell has not yet publically confirmed the deal, but the Ukrainian government signed it yesterday, with Shell expected to complete the contract today. President Viktor Yanukovich and his new fuel minister Eduard Stavitsky are set to meet Shell’s chief executive Peter Voser in Davos, with the intention of finalising the deal at the end of the World Economic Forum today.

The production sharing agreement will be the largest contract to date aimed at producing shale gas in Europe; although gas will still not be extracted for another few years, depending on the results of 15 test wells set to be drilled.

Shells most ambitious estimates suggest that by 2018 Ukraine could be producing around 20 billion cubic metres of gas annually.

By. Charles Kennedy of Oilprice.com