Unipetrol owner PKN stakes out Ukrainian shale gas

Ukraine has significant deposits of crude oil and natural gas, including three known petroleum basins

Poland — and Ukraine — could lessen their dependence on Gazprom thanks to shale gas | na serveru Lidovky.cz | aktuální zprávy Poland — and Ukraine — could lessen their dependence on Gazprom thanks to shale gas | foto: © PKN OrlenČeská pozice
Poland — and Ukraine — could lessen their dependence on Gazprom thanks to shale gas

Poland's PKN Orlen, the majority owner of Czech petchem Unipetrol, has signed an agreement allowing for cooperation in the exploration and production of hydrocarbons in Ukraine — a move that could help lessen both countries’ dependence on Russian gas imports.

“We have made another momentous step in the development of our upstream segment,” PKN Orlen president Jacek Krawiec said in a statement. “Importantly, we are launching operations in Ukraine — one of the development directions envisioned in our strategy.”

PKN Orlen said the agreement was signed in Kiev on Dec. 6 by Krawiec and Nikolay V. Zlochevsky, the Ukrainian Minister of the Environment and Natural Resources. Also present were representatives of Orlen Upstream, the group's exploration and production arm, which will be directly engaged in cooperation with the Ukrainian side.

“Our plans will be implemented together with Ukrainian partners, who possess a wealth of relevant expertise,” Krawiec said. “We will also be evaluating the potential of unconventional gas.”Thanks to shale, the US has become the world’s largest gas producer, overtaking Russia. Poland and Ukraine also hope to boost production via shale and wean themselves off Gazprom imports.

PKN Orlen and its Ukrainian partners will jointly conduct exploration and production projects related to both conventional deposits and shale gas, the company said.

A decision on any equity involvement will be preceded by and based on in-depth analyses and expert opinions prepared by partners under the agreement, the Polish company said.

Unipetrol, listed on the Prague Stock Exchange, is the leading refinery and petrochemical group in the Czech Republic and a major player in Central and Eastern Europe. Since 2005 it has been part of PKN Orlen, Central Europe’s largest refining and petrochemical group.

CEE shale undermining Gazprom

Thanks to shale deposits — natural gas trapped in rock rather than porous reservoirs — the United States last year became the world’s largest gas producer, overtaking Russia and driving prices lower.

Poland's annual natural gas consumption is about 13.7 billion cubic meters with around 30 percent produced domestically. In 2009 Gazprom supplied Poland with 9 billion cubic meters of Russian gas, according to the Russian exporter.

But geological studies show shale gas deposits in Poland are potentially large enough to greatly dimish Gazprom’s importance as a supplier to Central and Eastern Europe.

“Production of shale gas in Europe can change its energy paradigm,” Polish Foreign Minister Radoslaw Sikorski told an industry conference on shale gas in April, as cited by a Dow Jones reporter in his blog. “There’s a risk of exaggerated optimism. Shale gas raises questions that we don’t yet know answers to,” Sikorski said.

Poland has awarded over 50 five-year licenses for unconventional gas exploration to a number of oil and gas companies, including ExxonMobil, Chevron, ConocoPhilips, and Marathon Oil. Poland's largest gas company, PGNiG, holds 11 licenses covering areas that have the potential to contain shale gas, according to a ING Bank study on the Polish energy sector.

In August 2009,  Lane Energy Poland entered into an agreement with ConocoPhillips, the third-largest US energy company, to jointly evaluate the potential of Lane Energy Poland’s six Baltic Basin licences covering an area of approximately 4,000 square kilometers. Other US giants like Exxon Mobil and Chevron have also started drilling for shale gas in Poland.

“Off-the-record talks with top-level geologists indicate that the results in Poland were very positive, and that there is exuberance in Poland that signicant repositories of gas may be present in Poland,” a Warsaw-based source familiar with shale gas exploration in the region told Czech Position.

“Along with the exuberance, there is also ‘realism and scepticism.’ However, there is more and more interest in Poland and Ukraine in particular.”

'Black gold' (and gas) by the Black Sea

Ukraine has significant deposits of crude oil and natural gas. Three petroleum basins have been identified in its territory.

* The Dnieper-Donets Basin (Poltavskyi Basin), where the in-place un-appraised resources, as estimated by international experts, amount to 150 Mt of oil and 850 billion cubic meters of gas.

* The North Carpathian Basin, which — also in Poland — is the oldest producing petroleum basin.

* The Black and Azov Sea Basin, which comprises both onshore and offshore areas lying within the boundaries of Ukraine. So far, it is the least explored of the Ukrainian petroleum basins.