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3 Sep, 2011 06:24

Escaping to Shell for shale

Kiev and Moscow have failed to find common ground on their gas deals. Now, Ukraine has set its sights on an alternative pipeline system to reduce its energy dependence on Moscow.

­Back in 2009, an energy dispute between Kiev and Moscow led to Ukraine blocking the transit of Russian gas through its territory and disrupting European energy supplies. The dispute was resolved and the continent heaved a collective sigh of relief.

But the issue has remained a thorn in Kiev’s side. It is pushing hard for a discount from the current market price of US $400 for 1,000 cubic meters.

We made ourselves clear – if they want cheaper gas, then integrate with us into a common economic space,” Russia’s president Dmitry Medvedev commented. “If they don’t want that, then give us a good commercial offer – like selling their gas transportation system to us. They don’t want any of those, only discounts.”

However, it seems Kiev is already looking for an alternative escape route.

It has signed a US$800-million contract with Royal Dutch Shell to explore its reserves of shale gas. But experts have sounded the alarm about the risks to public health.

“Shale gas is extracted by hydrofracking. That means special chemicals are added to the water to break up the rock formations. The components of these chemicals are kept secret by the companies in the United States, who claim it's a commercial secret. But that water, laced with chemicals, ends up in drinking water. So shale gas development poses a serious threat to the environment and health,” warns Konstantin Simonov, the Head of the National Energy Security Fund.

Apart from being seen as unsafe, it is also described by many as too expensive and an inadequate replacement for natural gas.

“We're watching the situation, and we think that locally it's very viable, but it will remain a local gas supply,” comments Sergey Kupriyanov, spokesperson for the Russian gas giant, Gazprom. “It's impossible to extract gas at a loss for long. And if you look at the shale gas suppliers right now, you'll see that most of them are losing money.”

Experts say shale gas reserves in Ukraine may be the biggest in Europe, but it may take up to a decade to develop them.

Nevertheless, Kiev says next year it wants less Russian gas – slashing the amount it plans to buy by more than a third. The move violates the deal struck in 2009, and could see Europe’s energy supplies, once again, on shaky ground.

Another tussle over gas prices has left many in Europe worrying that there will be a new gas war and further disruption of supplies to Europe. But the Russian energy minister gave assurances that the events of 2009 will not be repeated, and that there is still time to find a compromise.