Ukraine, Shell to Sign $10 Billion Shale Gas Deal

KIEV--Ukraine and Royal Dutch Shell PLC (RDSA) will sign a landmark multibillion-dollar agreement Thursday to develop unconventional gas resources, government and company officials said, as the former Soviet republic tries to reduce its dependence on Russian gas supplies.

The $10-billion production sharing agreement will be signed at the World Economic Forum in Davos by Ukrainian President Viktor Yanukovych and Shell Chief Executive Peter Voser, officials said.

Ukraine is trying to wean itself away from costly Russian gas, as Moscow for months has refused its pleas for a discount. Russia has demanded closer economic and political ties in return for lower prices.

Ukraine has Europe's fourth-largest shale gas reserves of about 42 trillion cubic feet (1.2 trillion cubic meters), according to the U.S. Energy Information Administration. Ukraine estimates its reserves are much larger.

Shell won a tender last year for the Yuzivska deposit in eastern Ukraine, which government officials say holds 2 trillion cubic meters of gas and could produce up to 15 billion cubic meters of gas per year by 2020. Chevron Corp. (CVX) won the rights to develop the slightly smaller Olekse deposit in western Ukraine, where nationalist politicians are opposing the project.

Ukraine's upcoming deal with Shell comes as it tries to diversify its energy sources away from Russia's OAO Gazprom (GAZP.RS). Ukraine imported around 32.5 billion cubic meters of Russian gas last year, paying an average of $430 per 1,000 cubic meters, a price that officials say is stifling the economy.

Prime Minister Mykola Azarov said last week that Ukraine plans to cut gas imports from Russian by increasing its own production and importing gas from Germany. Mr. Azarov said Ukraine plans to extract up to 2 billion cubic meters of gas on its Black Sea shelf, and buy up to 5 billion cubic meters of gas from western Europe.

-James Marson in Moscow contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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