May 19, 2024

Ukraine Looks to Texas for an Energy Path

By drilling in the scrubland and vacant lots in and around the city of Fort Worth, American energy companies have demonstrated that they can produce natural gas economically from shale — a form of sedimentary rock previously considered all but worthless.

Now, despite environmentalists’ opposition to the water-polluting potential of the shale-gas extraction method known as fracking, the technology’s proponents are heading abroad. And Ukraine, which sits atop tantalizingly large shale deposits, is eager to do business.

Already this year, Ukraine has opened talks with three Western energy giants — Exxon Mobil, Chevron and Shell — to search for shale gas. Ukraine’s Parliament has also passed investor-friendly legislation aimed at opening its domestic natural gas market to shale gas producers.

Meanwhile, the nation’s president, Viktor F. Yanukovich, has signed a shale-gas exploration agreement with the United States and reached an accord with the European Union on energy transport that opens Ukraine’s pipeline system to Western companies.

Along with the energy companies courting it, Ukraine sees shale as potentially altering the geopolitics of natural gas, lessening global reliance on Russia and the Middle East. Today, just three countries — Russia, Iran and Qatar — hold 54 percent of the world’s conventional gas reserves. But shale is found in many other places, including Eastern and Western Europe, India, China and Australia.

A 2009 study by the International Energy Agency estimated the world holds nearly as much gas recoverable through new techniques like shale gas, or another known as coal-bed methane, as through the traditional sort obtained by conventional drilling. The agency estimated there might be 380 trillion cubic meters of natural gas that could be recovered through these new techniques, compared with 404 trillion cubic meters obtainable through traditional means.

The energy agency has also predicted that unconventionally produced gas will rise from 12 percent of the global total in 2008 to 19 percent in 2035.

Although Ukraine already produces some natural gas by conventional means, it remains highly dependent on imports from Russia’s state-owned gas monopoly, Gazprom, the world’s biggest producer. Twice in the last five years, Gazprom has halted supplies to Ukraine country in politically tinged pricing disputes.

And yet, as a legacy of the Soviet era, Ukraine controls the pipelines through which Gazprom transports its natural gas to its Europe. It is a mutual dependence that at times seems more like a standoff: Russia has the gas; Ukraine has the pipes.

Ukraine, by finding a greater source of its own natural gas, would be hoping to reduce Russia’s leverage in that relationship.

The shale gas industry, for its part, could erode Russia’s once seemingly untouchable monopoly pricing power on natural gas, if the industry can duplicate Fort Worth-scale results from a belt of shale deposits in Poland and Ukraine that in some cases lie right under the pipelines carrying Gazprom’s gas.

Right now, Russia produces about 40 percent of the natural gas imported into the European Union, selling it mostly under long-term contracts that are linked to the price of oil — which has been soaring lately.

Gazprom says its average wholesale price in Europe in the first quarter of 2011, the latest figures available, was $346 for 1,000 cubic meters. By comparison, the benchmark price for natural gas in the United States at the Henry Hub in Louisiana last month averaged $153.30 for the same volume.

Ukraine’s national energy company pays 30 percent less than the European rates, through an agreement Mr. Yanukovich signed last year to let Russia use a naval base on the Crimean Peninsula for 25 years. But that is still higher than the price in the United States.

 “Unconventional gas will be a game-changer throughout Europe,” said James Hill, vice president at BNK Petroleum, one of the companies that pioneered the technology in the United States and is now expanding in Europe. “We’re the mouse that roared.”

Poland is three or so years ahead of Ukraine in its shale gas industry, with exploration wells already drilled. But it is less sensitive to Gazprom’s monopoly, because Poland consumes far less gas than Ukraine. And Poland is geographically less critical for the transmission of natural gas to Western Europe than Ukraine, which transports about 80 percent of Gazprom’s exports to Europe.

Ukraine has four major, largely unexplored shale deposits, according to Valerii Berezhnoi, chief geologist for Vikoil, a Ukrainian seismic exploration company studying unconventional natural gas deposits. Nobody pretends to know how much gas they might hold. But as energy companies speculate on Ukraine’s potential, they point to the deposits that lie under Fort Worth, called the Barnett Shale.

Clifford Krauss contributed reporting from Houston.

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