Dutch Shell, Ukraine sign agreement on gas exploration

Royal Dutch Shell and Ukraine’s Nadra Yuzovskaya have signed an agreement on the exploration and production of gas in Ukraine. The agreement, signed during Ukrainian Prime Minister Nikolai Azarov’s visit to the Netherlands on Thursday, September 12, will allow both companies to start work at the Yuzovskoye field immediately. The field is believed to contain more than 4 trillion cubic meters of gas. Royal Dutch Shell is planning to allocate more than $500 million for the exploratory work, and its overall investment in the project will reach $10 billion. In late January 2013, Nadra Yuzovskaya and Royal Dutch Shell signed a production sharing agreement with regard to shale gas production in the Yuzovskoye field in the Kharkov and Donetsk regions. The document was signed in Davos in the presence of Ukrainian President Viktor Yanukovich. The agreement “will benefit us as it means investment that will allow Ukraine to increase its own gas production and therefore boost its economy,” the president said. It allows shale gas production in Ukraine for the first in its history. Under the agreement, production will be shared by and between Shell Corporation and Production Ukraine Investments and Nadra Yuzovskaya LLC. Gas production may reach 7-8 billion to 20 billion cubic meters a year. Royal Dutch Shell was named the best bidder for the development of the Yuzovskoye field in May 2012. At the stage of geological exploration, the company will invest $200 million in the project and nearly $3.75 billion at the stage of commercial production. The first exploratory wells are to be drilled already this year. According to the Ukrainian government, the Yuzovskoye field contains more than 4,000 billion cubic meters of shale gas. Prime Minister Azarov believes that its development will allow Ukraine to double or even treble overall gas production in the future. Ukrainian Minister of Energy and Coal Industry Eduard Stavitsky said the agreement would “reduce energy dependence on Russia.” The first effect is expected in 2015, with the energy dependence on Russia to be “brought to zero” by 2020. However experts are worried that the project can cause serious damage to the environment of Ukraine’s most densely populated region. “The production that is clearly pernicious for the environment is going to be set up in the National Nature Park Svyaty Gory,” Sergei Denisenko, an expert with the Donetsk ecological movement, said. “The technology for the production of shale gas, which is based on pumping thousands of tons of water with sand and a cocktail of hundreds of chemicals, is unpredictable under the ground. And if this ‘stew’ hypothetically gets into the Seversky Donets, one of the main water arteries in Donbass, it will have disastrous consequences,” he warned. Shale gas production plans have already spurred public protests in the region. Commercial shale gas production in Ukraine can cause irreparable damage to the environment, the head of the Ukrainian Ecological League, Tatyana Timochko, said. She said, citing findings by Ukrainian scientists from the National Academy of Sciences, that it would take an area of about two hectares to drill just one well. According to the expert, this will mean stripping the area “down to clay” in order to get a stable solid surface for process equipment, whereupon “thousands of hectares of fertile land will be ruined irrecoverably.” “This technology [of underground hydraulic reservoir fracturing] requires 5,000 to 20,000 cubic meters of water mixed with chemicals to be pumped down to a depth of 3-5 kilometers, with only 20-25% of this water coming back to the surface afterwards,” she said. After passing through radioactive rock, the water mixed with rocks, clay, sand and chemicals will come back to the surface, but it is not known how it will be recycled, Timochko said. “This water will get back to the surface and then what? It’s nothing like the Marcellus Formation in America where the public forced [the authorities] to build a plant for recycling this mass only 15 years later. Until then it was dumped into the desert, into some pits there. But density [of population] there where the Marcellus Formation is, is 2 persons per square kilometers, while in the Kharkov and Donetsk regions it is 78-84,” she said. Timochko stressed that “there is simply no place to dump this solution” in Ukraine. “All this dirt will stay on the surface and will poison surface water,” she warned. She also spoke of possible consequences of shale gas production in areas where coal was or still is mined. “Mines have already created manmade faults and if hydraulic fracturing starts, the degree of ground shaking will increase. These are manmade earthquakes that the British spoke of and that forces them to stop shale gas production in England,” Timochko said.