In Digest, Ukraine

Roman Olearchyk, The Financial Times, Dec. 15, 2014

KIEV–US energy giant Chevron has told Ukraine that it will pull out of a $10bn shale gas exploration project agreed last year, officials said, in a further blow to the country’s war-torn economy and its hopes for an alternative to Russian gas imports.

One gas production forecast for Ukraine

One gas production forecast for Ukraine

Valery Chaly, deputy head of Ukraine’s presidential administration, on Monday said he had received “signals” the company wanted to withdraw from the strategically important project. While Mr Chaly stressed that Kiev was keen to continue negotiations, Chevron said in a statement that it was “premature for us to comment,” adding “we have just delivered to the government of Ukraine our response”.

The cancellation comes months after Royal Dutch Shell, which also signed a multibillion-dollar production sharing agreement last year, froze shale gas exploration in eastern Ukraine amid fighting between government forces and Russian-backed separatists.

… “With oil prices falling, not so great geological findings in nearby countries coming in and Ukraine country risk surging with the war as well as economic instability, it is clear now that the much hoped for shale gas boom and associated multi-billion-dollar investments will not materialise,” said Ukrainian energy analyst Dmytro Marunich.

Chevron lost interest in the western Ukraine shale exploration project after findings in nearby Poland and Lithuania with similar geology showed worse than expected reserves, said a person with knowledge of the situation. Unresolved tax issues also played a role.

…The cancellation of the shale gas projects is “darkening an already dark picture,” said Ukrainian economist Andriy Novak.  “Much can be explained by the lack of reforms on the Ukraine government side and it’s a verdict for them that an IMF mission visiting Kiev is basically leaving before the holidays without an agreement on fresh disbursements,” he added.

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