This morning’s news tells us that the Ukranian government has begun an attack on protesters camped out in the Maidan, or Independence Square, known now as the Euromaidan. Reports say that over 25 have been killed including several police officers. The fighting follows several months where protesters have taken over several blocks of downtown Kiev, set up an encampment, and armed themselves with rocks.
The press is describes the conflict as a question of Ukraine’s identity – is it a European country, or an Asian/Russian country? It’s a large country, about 45 million people, straddling the Europe/Russia/Asia dividing line. However, the crisis has very much to do with natural gas supplies and fracking.
The Ukraine, while sitting on large shale gas deposits, cannot afford to develop those deposits itself, and was looking to either the European Union or Russia to fund shale gas development. Over the last year Ukraine signed deals with both Chevron and Shell allowing both companies to begin exploratory drilling in preparation to start full scale fracking. Additionally, the country owes billions of dollars to GAZPROM, Russia’s oil and gas company.
This is a map of shale gas deposits in Eastern Europe that I found while writing an earlier report on fracking in Romania. We see two shale gas regions in the Ukraine, in the East and in the West. The Western formation stretches from Romania (which I’ve been reporting on recently) and into Poland. While researching this earlier, I’d learned that the Western oil companies had been in Poland trying to exploit those same resources, but since left because Poland wanted to institute higher royalties than Exxon/Chevron/etc were willing to pay.
But, let’s get back to the Ukraine, and focus on the real story. It’s sad that people are dying in the streets, but we want to focus on the real reason behind the fighting.
As we see in the following stories – Ukraine had inherited a significant natural gas pipeline infrastructure when the Soviet Union fell apart, putting Ukraine into the role of middleman between GAZPROM and its natural gas customers in Europe. A few years ago Ukraine caused some ruckus by increasing the transport price, the price it charges for allowing natural gas to flow through their pipelines, leading to a crisis in Europe.
One result is a pair of pipelines, Nord Stream and South Stream, that bypass Ukraine allowing GAZPROM to sell directly to Europe.
The other result is Ukraine owes a bunch of money to GAZPROM and was looking to either the European Union or Russia for an aid package. They started to make a deal with the EU, and additionally signed deals with Royal Dutch Shell and Chevron under which both companies would begin the exploratory work necessary before going to full scale fracking. By opening their shale gas deposits to fracking, Ukraine would free itself from dependency on Russia.
Then, in late November, Ukraine did a U-Turn choosing to embrace Russia, because Russia offered a bigger aid package. That set off the protests.
Gas Is the Fuel of Ukrainian Foment: In 2005-6 and in 2009, Ukraine saw its natural gas supply from Russia cut off that may have been about natural gas pricing, or else about corruption by then-President Yulia Tymoshenko. Ukraine was offered a $15 billion package by Russia, beating the economic package offered by the European Union, and some of that package will wipe away debt Ukraine owes to GAZPROM.
Ukraine unrest: the energy connection: When the Ukraine agreed to purchasing lower cost natural gas from Russia, it infuriated Pro-Europe factions eventually leading to the fighting and protests. Ukraine didn’t have much option, since it gets 70% of its natural gas from Russia. The dependency goes two ways, because Russia’s GAZPROM is dependent on Ukraine’s natural gas pipelines to sell gas to Europe.
Seven Reasons Why Russia Wants to Keep Ukraine All to Itself: It’s not just about natural gas. However, Ukraine has natural gas pipelines through which GAZPROM has sold gas to Europe in the past. But, Russians see Ukraine as a mini-Russia and as the birthplace of Russian/Ukranian society.
Ukraine owes Russia $2.7bln for gas – Gazprom: More details on the agreements between Russia and the Ukraine.
EU gives Gazprom preliminary ‘OK’ for South Stream gas pipeline: GAZPROM has been working on two gas pipelines that would bypass Ukraine, allowing Russia to directly sell gas to Europe without having to go through the Ukraine. South Stream is one of those, and an agreement was made allowing countries to buy gas through South Stream even though it technically violates EU law.
Ukraine sets back Gazprom profits by 10.5%: This quarter GAZPROM reported a large decline in profits. While the secretive company doesn’t explain the decline, observers believe it was caused by cutbacks in natural gas purchases by Ukraine.
Russia: Ukraine gas debt ‘source of anxiety’: “The growing debt for gas supplies is a source of anxiety,” Dmitry Peskov, spokesman for President Vladimir Putin, told Russia’s Kommersant-FM radio.
Ukraine Signs Drilling Deal With Shell for Shale Gas: In January 2013, Ukraine and Shell signed a deal allowing the company to begin exploratory drilling in the shale gas deposits. That’s the precursor to full scale fracking, and would take a few years before the fields would begin producing. At that time Chevron was trying to also get a deal, but was denied.
Chevron and Ukraine Set Shale Gas Deal: Chevron got their deal in November 2013. This was immediately before Ukraine suddenly performed a U-Turn and embraced Russia, setting off the protests.
THE ECONOMIC AND STRATEGIC IMPLICATIONS OF THE UNCONVENTIONAL OIL AND GAS REVOLUTION: This is a policy paper from the Economics and Security committee of NATO. I haven’t read it in detail yet, but it looks to be a great overview of the Fracking situation in Europe.
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