2013-12-26 00:59:57 - New Energy research report from Business Monitor International is now available from Fast Market Research
A second major shale gas deal in Ukraine, to be signed by Chevron, confirms our cautiously optimistic view regarding momentum building up in the Ukrainian shale gas sector. The deal provides some upside potential in alleviating a part of Ukraine's import burden in the long run. It also shows an increasing commitment by international oil companies to the country's shale gas potential. However, we factor in production from 2018 onwards - a more conservative estimate to the government's 2015 target - and believe that shale gas production is unlikely to significantly overturn Ukraine's heavy dependence on gas imports from Russia. It remains that Ukraine will have to improve energy efficiency in order to reduce the detrimental impact of energy dependence
on its economy.
The main trends and developments we highlight for Ukraine's oil and gas sector are:
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* The EIA released new estimates of global technically recoverable shale gas in mid-June 2013. Ukraine appears to be one of the main beneficiaries of this revaluation as the EIA now estimates that the country holds 3.6trn cubic metres (tcm) of unconventional resources.
* The production sharing agreement (PSC) agreement with Chevron will entail an initial investment of US $350mn by Chevron in exploratory work at the Olesska site in western Ukraine.
* Successful completion of a 10-stage hydraulic fracturing (fracking) programme by JKX Oil and Gas and Schlumberger in Q3 put Ukraine on the forefront of exploratory activity outside the United States. However, initial results from the well R-103 in October 2013 came in at the lower end of estimates at 0.3bn cubic metres (bcm)/year and 25 barrels per day (b/d) of condensates. The company is planning a second multi-frac well in its licence area.
* Royal Dutch Shell will spend up to US$10bn in total to develop the Yuzivksa block. The initial stage will see some US$500mn invested in the area with first gas planned for end-2014 according to Ukrainian officials. According to Shell, the Yuzivska block is estimated to contain 3-3.5tcm of gas-in-place. The Anglo-Dutch major is due to target both conventional and unconventional shale and tight gas in the area.
* In August 2012, a consortium consisting of ExxonMobil, Shell, OMV Petrom and Nadra Ukrainy was awarded a 50-year PSC for the deepwater Skifska field, with an estimated 200-250bcm of gas-in-place, in the Black Sea. A PSC for the field is expected to be signed by end-2013.
* In terms of gas supplies and Ukraine's relations with Russia the bilateral relations have grown more tense as Ukraine's association agreement with the EU approaches. In October Gazprom noted that Ukraine had failed to settle payments of US$882mn for gas supplied in August, suggesting that renewed flare-ups in the relations could be likely.
* Gas production could see a gradual rise from an estimated 20.1bcm in 2012 to 21.8bcm in 2016 as current exploration successes in unconventional and deep-water Black Sea fields are developed over the period. This will further rise to 26.8bcm by 2021 on the back of the beginning of shale gas output, which we factor in at 2018. Consumption will be volatile, and we forecast lower gas consumption in 2013 and 2014, with a slight resumption in 2015. Our forecasts suggest that by the end of our forecast period in 2022 Ukraine will still need to import about 46bcm.
* Ukraine is planning a liquefied natural gas (LNG) regasification terminal with annual capacity of 10bcm. However, we do not expect it to come online before 2018, although Ukrainian officials are targeting 2015. The government has actively courted Azerbaijan and Qatar for long-term LNG supplies. We forecast 5bcm in LNG imports from 2018 onwards, noting risks to the upside and the downside to this forecast, depending on how the plans proceed.
* A slight downward revision to BMI's economic growth forecast for Ukraine leads us to decrease our forecasts for Ukraine's oil consumption in 2016 to around 327,000 barrels per day (b/d) of oil. This could rise to 385,000b/d by 2022. With crude oil and gas liquids production likely to slip below 51,000b/d by the end of our forecast period (and assuming no new refining capacity to come online), Ukraine will require imports of 183,000b/d of crude oil for refining and an additional 62,000b/d of refined petroleum products in 2014. By 2022, we forecast total oil net imports of 328,000b/d, of which 181,000b/d will be for crude oil and 153,000b/d for refined products.
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