Ukraine: Energy Giant Moving to Realize its Potential
Eurogas shows its long-term commitment to shale gas development
Developing shale gas plays in Ukraine may not be the easiest proposition in the world.
Just ask Wolfgang Rauball, CEO & Chairman at EuroGas, Inc. In his talk at the Global Shale Gas Forum in Berlin, Germany, entitled Can Shale Move Ukraine Towards Self-Sufficiency?, Mr. Rauball gave delegates an overview of the importance of Ukraine, and was candid about the country’s stumbling blocks.
Referring to the critical situation that emerged between Russia and Ukraine, when the former shut off gas supplies flowing through Ukrainian infrastructure to the West, Rauball commented: “It’s amazing that the potential, size and importance of the country, Ukraine, comes to light when something goes wrong. That’s when people suddenly realized how important it was.”
He explained that Eurogas had been working in Poland since the fall of the Berlin Wall and began exploring in Ukraine in 1995.
“It’s the largest country in Europe,” said Rauball. “Even in the 19th century oil & gas was produced there. Three million tons of oil was produced in 1909, so it’s been important since the early days.”
“Today, Ukraine is not energy self sufficient,” he explained, “but is an energy giant which has not realized its potential. It imports a majority of the oil and gas that it consumes. The awareness to achieve self sufficiency is not yet there. The present business climate lacks transparency and is one reason you don’t have the major oil companies trying to get concessions in Ukraine – none have been issued to date on this side of the border (in contrast to Poland).”
In fact, as reported this summer Royal Dutch Shell, which has stated its intention to invest in Ukraine, had been lobbying the country’s Energy Ministry to allow for large drilling concession areas, extended licenses and tax incentives to facilitate shale gas production.
Rauball said that while Ukraine had a desire to improve the existing business climate, this year the Orange Revolution had been given over to the new administration. He added that historically, oil & gas production in the country had been pretty constant; today it produces only 20 billion cubic meters of gas (in contrast to 70 BCM in the Brezhnev years). According to him, Ukraine has a significant deficit of hydrocarbons, consuming over 50 BCN last year.
But Rauball said the infrastructure in Ukraine is there.
“Ukraine has great export capacity with a dense network of pipelines that is integrated into the European gas network. It connects gas suppliers from Central Asia to Europe. It can provide almost 180 BCM of gas. Over 80% of Russian gas is transported through Ukraine to western Europe,” he remarked.
It also has a network of underground gas storage facilities, he said, the second largest in Europe. Rauball pointed out an area near Lviv, which hosts a significant gas storage site.
He offered his appraisal of how the Ukrainian government is handling development of the energy sector, and the resulting repercussions. “Locals are well educated in local geology, but don’t know what’s happening outside of Ukraine. The data come very slowly, which is one reason why international companies are having problems obtaining data – it’s just not being released by ministries. So there’s almost no understanding of shale gas,” he said.
Rauball continued, harkening back to Eurogas’s history in Ukraine.
“Almost 15 years ago we began our first drilling right at the Polish border. We’ve gathered a huge database comprising 60,000 kilometers but we didn’t know anything about shale gas potential. When we heard about Exxon and Chevron in Poland we went back and looked at the potential of our area. We found out that at the 40 wells we examined the Silurian formation shows an incredible thickness which is uniform – unheard of. So there was a huge possibility to develop shale gas in western Ukraine.”
“We’ve shared some of this information with some multinational partners,” he said. “When we revealed our cooperation with Total in April, no one was talking about shale gas. Now every multinational is enquiring, but our cooperation will be primarily with Total and ENI.”
The whole process of issuing concessions and licenses had been stopped since the government change, reported Rauball, who said that no other international energy enterprise had applied for concessions in Ukraine other than his.
He said, “Obtaining data there is very slow, so if we hadn’t been working there for the last 15 years we wouldn’t have the data either. There is 50 year old data available which is incredible.”
According to that data, he claimed that Ukraine probably had an even bigger potential than Poland. “The Russians were digging geological wells, which gave us an incredible information database that we are now sharing with some of the world’s largest oil companies.”
One big task in Ukraine, said Rauball, was educating the authorities, which also includes Ukrainian politicians. “Implementation will bring understanding,” he said.
But this past June the Kyiv Post reported that the Ukrainian government had been making efforts to acquire shale gas production know-how, and that it was planning to sign agreements with US energy enterprises, who are interested in potential coal-bed methane and shale gas resources in Ukraine
Advantages for shale gas drilling in Ukraine include a sparse population, favorable topography, ample water, plenty of skilled/unskilled workers, and a well-developed gas transport network as well as storage. Rauball added that the country had adequate roads and bridges, cooperative local municipal governments, and knowledgeable technical staff. He added, “They’re interested in cooperation with foreign companies to achieve this goal.”
But among the disadvantages he listed was the lack of modern drilling equipment in Ukraine.
Eurogas’s Chief Geologist, Yuriy V. Koltun, PhD. took the podium in Berlin to speak about the geological aspects of Ukraine’s shale basin. Koltun showed the Ukrainian portion of the coal basin.
“It’s an extensive sedimentary basin, which stretches from the Baltics to the Black Sea area and contains black shales,” he said. “Three Silurian reefs have been found. They represent a hydrocarbon potential play. A number of oil shales have been observed as well.”
Koltun added, “The materials on the shale part of the sequence are often limited because no one was interested in them. Very soon we will be in a position to make a reliable evaluation of the shale gas data.”
Mr. Rauball reported that Eurogas was in advanced negotiations with shale gas drillers, but had to narrow things down. “We want to bring in companies from the European Union, because they might have a better position in Ukraine,” he explained. “Our negotiations for cooperation in Western Ukraine are with three major international oil companies, and operations are set to commence as soon as license applications are approved.”
Asked exactly how tough it was to do business in Ukraine, Rauball admitted, “It is difficult, and needs a lot of patience.”
He added, “Ukraine is not a country ready for a fast turnaround. We’ve succeeded. We are a small company but we have a lot of patience.”
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