Chevron to leave Ukraine?

Will Chevron discontinue its shale gas exploration project in Ukraine? The Ollesko shale gas exploration project is under question mark.

According to an official of government administration in Kiev interviewed by  Reuters,  Chevron decided to leave Ukraine and suspend its potentially USD 10 billion dollar-worth shale gas project of Ollesko. If confirmed, the decision of this US company, that operates also in Poland, would mean a hard blow to gas shale production projects in Ukraine and shale gas exploration in Europe.

As late as November 2014 Minister for Energy Yuriy Prodan claimed that Ukraine holds fourth largest shale gas resources in Europe and is capable of increasing in a short time the natural gas production by 30%-40% to 30 Bcm. At the same time Dmitri Kashchuk, in charge of National Geological Service and Natural Resources, announced that the final agreement with Chevron was to be signed in 2014.

Today, Ukraine consumes 50 Bcm of natural gas per year, of which almost a half is imported from Russia. Potential Chevron's decision to withdraw from Ukraine would compromise Kiev's ambitious plans to reduce reliance on gas imports from Russia.

Formally, Ukrainian government's decision to raise the tax on extraction was the reason behind closing the Ollesko project, bu the drop in oil price seems to be a more probable reason. As oil prices fell almost 50% in the past six months, even the majors have to restructure their expenditures and investment portfolios. The low price of oil, combined with the ongoing war in Donbas and ailing Ukrainian economy, is most probably the decisive factor.

Another possibility is that the announcement of withdrawal from the Ollesko project is an attempt to exert pressure on the government in Kiev so as to obtain better conditions for activities conducted in Ukraine. Undeniably, huge changes in political and macroeconomic environment of the project would justify a modification of existing arrangements.

A formal Product Sharing Agreement (PSA) was first made in November 2013 with the administration of the then President Yanukovych.

Most probably, Ukrainian Government will attempt to keep Chevron in Ukraine. Will Chevron decide to start the project in a fast changing business environment? It is highly uncertain, but not improbable. Nevertheless, the project will be certainly scaled down and delayed.





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