Shell's Ukrainian Shale Deal

KIEV — Ukraine and Shell will sign a landmark multibillion-dollar agreement to develop unconventional gas resources, government and company officials said, as the former Soviet republic tries to reduce its dependence on Russian gas supplies. The $10 billion production sharing agreement will be signed at the World Economic Forum in Davos by Ukrainian President Viktor Yanukovych and Shell CEO Peter Voser, officials said. Ukraine is trying to wean itself away from costly Russian gas, as Moscow for months has refused its pleas for a discount. Russia has demanded closer economic and political ties in return for lower prices.

Ukraine has Europe’s fourth-largest shale gas reserves of about 1.2 Tcm, according to the United States Energy Information Administration. Ukraine estimates its reserves are much larger.

Shell won a tender last year for the Yuzivska deposit in eastern Ukraine, which government officials say holds 2 Tcm of gas and could produce up to 15 Bcm of gas per year by 2020. Chevron won the rights to develop the slightly smaller Olekse deposit in western Ukraine, where nationalist politicians are opposing the project.

Ukraine’s upcoming deal with Shell comes as it tries to diversify its energy sources away from Gazprom. Ukraine imported around 32.5 Bcm of Russian gas last year, paying an average of $430/Mcm, a price that officials say is stifling the economy. Ukraine plans to extract up to 2 Bcm of gas on its Black Sea shelf, and buy up to 5 Bcm of gas from western Europe.