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Shale Diplomacy: Americans Court Ukraine Fearing Its Alliance with Gazprom

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Top officials of international petroleum companies—led by American corporations—have been frequenting Kyiv during the year in an evident attempt to help Ukraine decrease its dependence on Russian energy imports. Will the Ukrainians be able to develop their shale gas reserves instead of accepting Russian terms?

Declarations in Abundance

Chevron and Exxon Mobil have declared they would like to play a role in developing Ukrainian shale gas. Deputy CEO of Naftogaz Ukrainy Vadim Chuprun says that negotiations are going on with ConocoPhillips as well.

It began a year ago. Officials of Ukrgazdobycha, a unit of Naftogaz, met representatives of Chevron to discuss prospects of producing unconventional gas in Ukraine. Two months later Minister of Energy and Coal Industry Yuri Boiko and the U.S. State Department’s special envoy for Eurasian energy Richard Morningstar signed a memorandum of understanding in Washington on cooperation in this business in the presence of the countries’ top diplomats Konstantin Grishchenko and Hillary Clinton.

The focus is obvious. The State Department has been promoting the Global Shale Gas Initiative (GSGI) since April 2010, aimed at assisting unconventional gas production in various countries. Poland with its tremendous estimates of shale gas reserves, for example, is such country, and Ukraine is another one.

Ukraine depends on Russian gas supply of up to 40 bcm a year, and the price of this gas, estimated by Deputy Prime Minister Sergei Tigipko to reach $485 per bcm in the first quarter of 2012, is a very heavy burden for the national economy.

Moscow says it is prepared to offer a big discount but only if Kyiv follows the example of Minsk. The Belarusian government has sold its gas transportation system to Gazprom and joined Russia and Kazakhstan in a Customs Union. Now Belarus can pay just $164 per bcm of Russian gas.

The Americans have reason to suspect that the Ukrainians will turn to Russia if the price of gas becomes unbearable for them, and the balance of power in Eastern Europe may be altered in favor of Moscow. The danger seems to be real enough to make the United States want to help Ukraine increase its own gas production.

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