Ukraine Steps up Quest for Energy Independence from Russia

on Jun 20, 2012
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Ukraine has invited offers from energy groups from across the world to explore for natural gas and oil in two vast offshore fields on its Black Sea coast as the country seeks to reduce its reliance on expensive and contrary Russian gas imports, The Financial Times reported.

The Financial Times reported earlier this month that Ukraine has invited bids from international energy companies to explore for natural gas and oil in the 13,600 sq km Foroska field, off Ukraine’s Crimean peninsula and the 16,700 sq km Skifska field, located close to Ukraine’s offshore border with Romania.Industry and government sources said that among the companies interested in the new offshore exploration projects are international energy groups, such as ExxonMobil and Shell, as well as China’s Sinopec,Austria’s OMV,France’s Total,Brazil’s Petrobras andItaly’s Eni. Officials announced thatoffers were expected within the next two months.

Citing government estimates, Kiev-based investment bank Dragon Capital said annual production from the Skifska and Foroska fields might “peak at 3-4 billion cubic metres and 2-3 billion cubic metres, respectively. With water depths in these areas reaching 1,500m, we think commercial development of these fields can realistically start in seven to eight years.”

!m[](/uploads/story/93/thumbs/pic1_inline.png)The winning bidders are expected to pay an upfront premium of at least $300 million to Ukraine’s cash-strapped government, an official said. Should commercially viable hydrocarbons be found, Ukraine’s government wants a 20 per cent share for domestic use.Investors will not be required to sell their share of hydrocarbons to Ukraine, but this option is likely to be attractive given the prices the country is paying for Russian gas imports.

Ukraine’s decision to invite bids from energy groups is in line with the government’s long-term strategy of reducing reliance on Russian energy imports. Currently Ukraine imports about two-thirds of its gas from Russia at a price that has been increasing over the last few years and is expected to reach the average of $415 per thousand cubic metres this year. Russia said it would cut the price for Ukraine only if Russia’s Gazprom is allowed to buy into Ukrainian gas pipelines, which carry the bulk of Russian gas to Europe, a trade-off Ukraine refuses to accept.

During his first two years in power, the Ukrainian President Viktor Yanukovych has repeatedly criticised import prices charged by Russia’s Gazprom as unfairly high. He has also pointed the blame at his bitter rival, jailed opposition leader YuliaTymoshenko, who as a prime minister in 2009 brokered the current supply agreement with Russia.Talks on decreasing prices have lasted for more than a year but without results being produced so far.The ongoing price issue increases the already existing concerns among Gazprom’s European consumers who in the past have suffered from supply disruptions due to the conflicts between Russia and Ukraine.
As part of its energy strategy Ukraine also has recently chosen Chevron of the U.S. and Royal Dutch Shell as winning bidders in two multibillion-dollar onshore exploration projects that are expected to utilise shale and other unconventional technologies to unearth hydrocarbons.

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