CSIS: Ukraine: On the Road toward Energy Independence?

Ukraine is taking unprecedented steps toward independence from Gazprom, the Russian state-owned gas monopoly. Gazprom’s influence stems from owning the planet’s largest natural gas reserves and supplying many Eastern European countries with the majority of their gas . Ukraine has relied heavily on Gazprom, which supplies the country on average with $13.7 billion of gas per year.

Gazprom has consistently charged higher gas prices than those of other European customers. Over the past four years, Gazprom’s stock has declined dramatically and its dominance over Europe is finally beginning to wane . In light of this, Ukraine is attempting to avoid the grip of Gazprom by diversifying it gas supplies and focusing on domestic shale gas production. However, it is unlikely that the development of the shale gas industry will have a significant effect on the diversification of Ukraine’s gas supplies in the next five years, largely due to the ineffectiveness of the Ukrainian government and an increasing reliance on inexpensive gas imports from the European Union (EU).

According to the U.S. Energy Information Administration, Ukraine holds the third largest shale gas reserves in Europe, with over 42 trillion cubic feet . Many have argued that domestic shale gas production could not only make the country energy independent, but could even transform Ukraine into a major competitor with Russia for the export of gas to the European market. After years of deliberation, the first breakthrough toward Ukrainian shale gas production occurred in January 2013 at the World Economic Forum Annual Meeting, when the Ukrainian government signed a $10 billion contract with Royal Dutch Shell for the mining of shale gas in the eastern Ukrainian Yuzivska field. Shell is now planning to drill 15 wells as part of a 50-year joint venture with the Ukrainian state-owned energy company Nadra Yuzivska.  MORE