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INTERVIEW-Ukraine shale talks cannot run on indefinitely-Chevron

Source: Thomson Reuters Foundation - Wed, 20 Feb 2013 11:03 AM
Author: Reuters
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(Repeats Feb 19 story to additional subscribers, no change to text)

* Olesska project has met local opposition in west Ukraine

* Chevron has sought to allay local fears over fracking

* Ukraine seeking gas independence from Russia

By Richard Balmforth

KIEV, Feb 19 (Reuters) - Chevron remains optimistic over prospects for a shale gas deal in Ukraine but talks with the government which have already been extended cannot drag on indefinitely, an executive with the U.S. company said on Tuesday.

Chevron is negotiating a production-sharing agreement for shale exploration of the Olesska field towards Ukraine's western borders with the European Union.

Royal Dutch Shell signed a ${esc.dollar}10 billion deal with the government for exploration of the Yuzivska field in eastern Ukraine last month.

The Chevron project, however, has run into vocal criticism from local politicians and environmental lobby groups.

Reflecting how politically sensitive it remains, the Kiev government has removed a self-imposed May deadline for conclusion of the deal to allow itself more time.

Shale development is progressing slowly in Europe, where Poland and Britain also have plans, yet it has already transformed the U.S. energy market.

Shale has helped more than halve U.S. gas prices in the last five years, offering companies there a steep advantage in energy costs versus their European rivals.

The 5,260-square-kilometre Olesska field lies on a band of shale stretching from the Baltic to the Black Sea, Chevron says.

Along with the Yuzivska field, it forms a core part of plans to ease Ukraine's dependence on imported natural gas supplies from Russia.

Chevron's country manager in Ukraine, Peter Clark, told Reuters he remained optimistic over a deal and said Chevron was "motivated" to reach agreement.

But he added: "You would think that if the negotiations have not reached an agreement in a year, year and a half or two years, I don't know what this time is, one side or another would have to be impatient and say 'Well, it looks like we are not going to get an agreement, let's stop wasting our time'."

Ukraine estimates potential reserves at Olesska at 0.8 trillion to 1.5 trillion cubic metres.

Clark himself declined to give estimates of commercial potential or reserves of natural gas that could be trapped in shale deposits deep under ground. Nor would he give details of the agreement under discussion.

A signed deal would clear the way for exploratory drilling needed to establish potential reserves and locate areas to be avoided because of risks to the environment.

Political opposition to the deal, much of it led by the powerful far-right nationalist Svoboda party, has complicated negotiations.

The story was different in the eastern Donetsk and Kharkiv regions, where local councils loyal to the ruling Party of the Regions of President Viktor Yanukovich quickly approved the deal with Shell.

Clark and outside experts hired by Chevron have met local groups to try to allay fears of environmental damage from shale exploration, which involves hydraulic fracturing, or "fracking", which involves injecting water and chemicals into layers of rock to release trapped gas.

The worry of environmental groups is the process could trigger tremors or pollute groundwater, while industry officials say the former risk would only arise if fracking occurs on a natural fault.

Chevron's information campaign seeks to assure people about the safeguards it has proposed against any such risk.

"I am hoping that there is (now) a more open attitude towards looking at the facts rather than some of the scare stories that have been put out there. I think it is going to be a continuing discussion (with local groups)," he said.

Chevron emphasises local benefits such as road improvements and new support services that would create hundreds of jobs. Local support for the project's success is vital, he said.

"What we want is for the population as a whole ...to agree that this is a good project and will bring benefits. You won't get 100 percent to agree, but I think you need a strong majority before it is going to be feasible for us to operate," he said.

"Chevron is motivated to reach agreement ... (But) at some point my boss, his boss, all the way up to the chairman and stockholders are going to say 'Well, if we are not making any progress let's go home. Let's not continue to spend money for something we are not going to conclude'."

Legislation requires the blessing of the regional authorities for any agreement to be effective. "As far as I know, it (the text of a proposed profit-sharing agreement) has not been sent to the regional authorities," Clark said. (Writing by Richard Balmforth; editing by Jason Neely)

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