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What Ukraine Needs Is An American-Style Shale Gas Revolution
Photo Credit: Forbes Business

What Ukraine Needs Is An American-Style Shale Gas Revolution

Mar 3 2014, 5:10pm CST | by

Natural gas was the origin of the crisis in Ukraine. The country serves as a transit point for about 6 billion cubic feet per day of Russia’s natgas exports into Europe . That’s about 2.2 trillion...

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21 weeks ago

What Ukraine Needs Is An American-Style Shale Gas Revolution

Mar 3 2014, 5:10pm CST | by

Natural gas was the origin of the crisis in Ukraine. The country serves as a transit point for about 6 billion cubic feet per day of Russia’s natgas exports into Europe . That’s about 2.2 trillion cubic feet per year, or 14% of Europe’s total supply.

More than just serving as a middleman for Russian gas, Ukraine is like the dealer who got hooked on his own supply. Under the terms of its last supply deal, Gazprom agreed to sell gas to Ukraine at $7.70 per thousand cubic feet, a 33% discount to what European customers pay (but a big premium to U.S. gas prices of roughly $4.50 per mcf). Moscow even agreed to gradually buy $15 billion of new Ukrainian bonds, to keep the country from defaulting on other debts.

Yet even at that discounted price, Ukraine has had a tough time paying Gazprom’s invoices. Earlier today Russia suggested that if Ukraine didn’t pay its $1.5 billion gas bill Gazprom might just shut off the valves and renege on those price discounts. Since 2006, Putin has twice cut off the gas to Ukraine, most recently in 2009.

Edward Chow at the Center for Strategic and International Studies, wrote in this essay last December that Ukraine’s being “addicted to cheap gas … has blocked the modernization of its industry, economy and politics.”

Ukraine has been a junky for Russian gas. Putin clearly had no problem with that; it is in Russia’s interest to keep Ukraine and Europe hooked on Russian gas at prices just low enough to quash incentives to drill and frack for shale gas. Russia’s state-run news and propaganda outlets have for years disseminated articles critical of fracking and supported opponents of the technique, despite its 50-year track record of proven efficacy and scant mishaps.

Even Ukraine’s ousted President Yanukovich, despite his dealmaking with Russia, had clearly acquiesced to pressure to explore Ukraine’s other energy options.

Last year Ukraine signed natural gas exploration deals with Royal Dutch Shell as well as Chevron, which pledged to invest as much as $10 billion if adequate supplies of shale gas were found. The government said it hoped the two companies’ projects would add more than 50% to Ukraine’s current domestic natgas supply. Ukraine could hold more than 40 trillion cubic feet of recoverable shale gas, enough to satisfy decades of demand.

Now with Yanukovich gone it’s as if Putin has taken the Crimea as a kind of hostage — collateral to hold against what Ukraine owes Russia for gas.

A few billion dollars in IOUs is, of course, a less than flimsy pretext for thuggery. Which is why the Kremlin’s propaganda machine has been spreading lies about how his soldiers are there to save Ukraine’s ethnic Russians from right-wing crazies.

But Putin’s actions underscore the threat that shale gas development really does pose to Russia’s gas-fueled diplomacy.

Even if Gazprom were to cut off gas supplies to Ukraine, there is no real fear of a gas shortage in Europe, according to Bernstein Research. This winter has been a warm one in the region (as witnessed by the balmy temps for the Sochi Olympics), so demand for heating has not been as great. Thus, natural gas volumes in storage are higher than average, at about 50% of capacity.

What’s more, even if Russia did halt shipments through Ukraine, there’s enough extra space in the Nord Stream pipeline running from Russia into Germany to pick up about half of the slack.

The rest of any shortfall could likely be met with greater imports of superchilled LNG. Europe has been building more gas storage in recent years precisely to balance out Russia’s influence and to position itself to receive LNG not just from established gas giants like Qatar, but also from giant new projects in Australia, a host of planned export terminals in the U.S. and even new developments in the works offshore Israel.

Analyst Oswald Clint, of Bernstein, said in a note today that several big oil and gas companies are positioned well to benefit from higher gas prices on the continent. BG Group ships a lot of LNG and has a higher percentage of its supply free to be sold on the spot market. While Shell is also a big LNG player. Statoil, meanwhile, is the company with the highest leverage to European gas, with Bernstein figuring that 47% of its net income last year came from European gas production and marketing.

As for oil, Ukraine uses about 300,000 barrels per day, with roughly 80,000 bpd sourced domestically. There the country is also beholden to Russia; Rosneft already owns Ukraine’s second-biggest oil refinery, and is in process of acquiring the biggest.

That’s too bad, because now would have been the perfect time for the Obama administration to lift the ban on American oil exports so that we could send a few million barrels of  American “freedom oil”  to Ukraine.

In Monday trading, shares of Statoil advanced 2.5%; Shell was down 1.4%; while Total (which has a gas venture with Russia’s Novatek) declined 2%. BP, which owns about 20% of Kremlin-controlled Rosneft, was down 3%. Gazprom’s ADRs plunged 11%./>/>

Vladimir Putin

Source: Forbes Business

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was br ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern stat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM2 ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Scheme 20 ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex) tod ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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