Friday, January 25, 2013

Shell Signs Big Agreement for Ukraine Shale Gas

Shell is going to take a crack at drilling for shale gas in Ukraine via a 50 year production sharing agreement that likely will lead to a $10 billion investment in the country's Yuzivska field.  Shell estimates that it can get annual production of somewhere between 7 and 20 billion cubic meters of gas by 2018.

Success for Shell in Ukraine is far from certain, as no other country has come close to replicating North America's success in producing shale gas.  This is sort of a "take three" on European shale drilling after disappointing results in Poland and the ongoing battles in Great Britain after suspicious seismic activity near a well in Blackpool.  Ukraine has the third largest estimated shale gas reserves (42 Tcf) and a glaring need for less expensive gas than Russia supplies.  Ukraine has also decided to partner with Chevron to develop the Olesska field and ExxonMobil to explore offshore in the Black Sea.

It's interesting to watch the business cycle of shale gas churn.  Creative, aggressive independent firms took the lead to quickly develop technologies and techniques through trial and error, only to see better capitalized majors assume the reins, largely through corporate acquisitions.  This is a natural part of the energy industry food chain, but it has happened remarkably fast.  Now energy majors are peddling shale extraction techniques in the major shale markets of Europe and Asia.  If we had depended on majors to develop shale gas technologies, we'd probably be in the equivalent of the shale stone age.

Long-term, the biggest natural gas-related export from the U.S. might be shale technology and expertise rather than LNG, and it's because of the pluck of the independents, not the girth of the majors.

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