Ukraine Offers Favorable Conditions for US Gas Drillers - FT

KYIV, Ukraine, November 27, 2012 /PRNewswire/ --

It is profitable to explore and produce gas in Ukraine now, John Dizard says in his article for Financial Times. He explains that gas is cheaper in America and, to get sizeable returns, companies search for more cost-effective deals elsewhere. "The Ukrainian gas prices are high enough to pay for the costs of shale and coal-bed gas, which are much higher than conventional gas," he writes.

While gas in the U.S. is priced at USD 3.5-4 per MMBtu, Ukrainian prices are closer to USD 12, notes Dizard. Additional upside of gas development in Ukraine is "extensive domestic pipeline network." He reminds that Ukraine recently inked deals with Chevron and Shell regarding shale and coal bed methane extraction in the country.

John Dizard lists reasons for Ukraine to provide "compatible discount rates" for foreign companies. First, it is Russia's strategic success in building alternative pipelines to provide gas to Europe bypassing Ukraine. At the moment, Ukrainian gas transporting system delivers approximately 70-percent of Russian gas to Europe. Second, domestic business in Ukraine needs reliable and cheap gas for the factories.

"It would be a very good time for mid-size exploration and production companies to get started here [in Ukraine]... We need dynamic mid-size onshore drilling companies, and we will explain to them how secure they would be here now," the article quotes Ukrainian Minister of Energy and Coal Industry Yuriy Boyko.

Currently, Ukraine is purchasing most of its imported gas from Russia - 26 billion cubic meters in 2012, and the projected 20 billion in 2013. In November 2012, Ukraine began importing gas from Germany, as an effort to get rid of energy dependency on Russia. Ukraine pays for Russian gas USD 432 per thousand cubic meters. Reportedly, the price for German gas is USD 40 to 70 less.

Additionally, throughout 2012, Ukraine advanced in exploration of domestic gas resources. It began cooperation with Chevron, Exxon and Royal Dutch Shell. The companies will develop shale gas in western and eastern Ukraine, as well as in the Black Sea shelf. Ukraine is estimated to possess the fourth-largest shale gas reserves in Europe, as previously stated by Financial Times.