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Page added on April 25, 2014
Beneath the Ukraine Crisis: Shale Gas
Assistant Secretary of State for European Affairs Victoria Nuland, speaking to Ukrainian and other business leaders at the National Press Club in Washington on Dec. 13, 2013, at a meeting sponsored by Chevron.
Behind the geopolitics pitting Russia against the West – and the ethnic tensions tearing Ukraine east and west – another backdrop for understanding this deepening conflict is the big-money competition for Ukraine’s oil and natural gas.
The crisis gripping Ukraine has plunged transatlantic relations to their lowest point since the Cold War and threatens to send Ukraine into an armed conflict with potentially dire consequences for the country and the wider region.
Moscow’s alleged meddling in eastern Ukraine and its earlier annexation of Crimea spurred worldwide rebukes and much international commentary regarding the growing East-West divide. But one aspect that we have heard less about is the corporate struggle for Ukraine’s oil and natural gas. By some accounts, it is this struggle that is as much to blame for the current crisis as any geopolitical tug-of-war between East and West.
Ukraine has Europe’s third-largest shale gas reserves at 42 trillion cubic feet,according to the U.S. Energy Information Administration. While for years U.S. oil companies have been pressing for shale gas development in countries such as Britain, Poland, France and Bulgaria only to be rebuffed by significant opposition from citizens and local legislators concerned about the environmental impacts of shale gas extraction – including earthquakes and groundwater contamination caused by hydraulic fracturing or “fracking” – there has been considerably less opposition in Ukraine, a country that has been embroiled in numerous gas disputes with the Russian Federation in recent years.
Russia’s state-owned Gazprom, controlling nearly one-fifth of the world’s gas reserves, supplies more than half of Ukraine’s gas annually, and about 30 percent of Europe’s. It has often used this as political and economic leverage over Kiev and Brussels, cutting gas supplies repeatedly over the past decade (in the winters of 2005-2006, 2007-2008, and again in 2008-2009), leading to energy shortages not only in Ukraine, but Western European countries as well. This leverage, however, came under challenge in 2013 as Ukraine took steps towards breaking its dependence on Russian gas.
On Nov. 5, 2013 (just a few weeks before the Maidan demonstrations began in Kiev), Chevron signed a 50-year agreement with the Ukrainian government to develop oil and gas in western Ukraine. According to the New York Times, “The government said that Chevron would spend $350 million on the exploratory phase of the project and that the total investment could reach $10 billion.”
In announcing the deal, President Viktor Yanukovych said that it “will let Ukraine satisfy its gas needs completely and, under the optimistic scenario, export energy resources by 2020.” Reuters characterized the deal as ”another step in a drive for more energy independence from Russia.”
The United States offered its diplomatic support, with Geoffrey Pyatt, the U.S. ambassador to Ukraine, saying, “I’m very determined to cooperate with the Ukrainian government in strengthening Ukraine’s energy independence.”
U.S. Assistant Secretary of State for Europe Victoria Nuland spoke at an international business conference sponsored by Chevron on Dec. 13, 2013, after just returning from Kiev where she handed out cookies and sandwiches to demonstrators on the Maidan. In her speech, she urged Ukraine to sign a new deal with the IMF which would “send a positive signal to private markets and would increase foreign direct investment that is so urgently needed in Ukraine.” This is important for putting Ukraine “on the path to strengthening the sort of stable and predictable business environment that investors require,” she said.
Although stability and predictability are not exactly the words that people would associate with Ukraine these days, Western energy companies have continued to maneuver for corporate rights over Ukraine’s shale gas deposits. Last fall, officials were in negotiations with an ExxonMobil-led consortium to explore for hydrocarbons off Ukraine’s western Black Sea coast.
On Nov. 27, the Ukrainian government signed another production-sharing agreement with a consortium of investors led by Italian energy company Eni to develop unconventional hydrocarbons in the Black Sea. “We have attracted investors which will within five to seven years maximum double Ukraine’s domestic gas production,” Yanukovych said following the agreement.
At the time of Yanukovych’s ouster in February, Chevron and the Ukrainian government had been negotiating an operating agreement for the shale development effort in western Ukraine, and Chevron spokesman Cameron Van Ast said that the negotiations would go forward despite Yanukovych fleeing the country. “We are continuing to finalize our joint operating agreement and the government continues to be supportive,” Van Ast said.
Royal Dutch Shell is also engaged in the country, having signed an agreement last year with the government of Yanukovych to explore a shale formation in eastern Ukraine. When it comes to Crimea, numerous oil companies including Chevron, Shell, ExxonMobil, Repsol and even Petrochina have shown interest in developing its offshore energy assets.
Believing that Crimea’s onshore and offshore fields will live up to expectations, these companies have greatly expanded their exploration of the Black Sea off the Crimean peninsula. Some analysts believe that one of Vladimir Putin’s motivations for annexing Crimea was to ensure that Gazprom will control Crimean offshore energy assets – in addition to ensuring the continued use of Crimea as host to Russia’s Black Sea Fleet.
It is clear that all of these oil and gas companies – backed by their governments, including those of the Russian Federation and the United States – are deeply embroiled in the Ukrainian crisis, with much invested and much at stake. But with their disproportionate influence over Ukraine’s future, it should be kept in mind that the number one responsibility of any corporation is to increase profit margins for its shareholders, not necessarily to promote the democracy or sovereignty of the countries they are operating in.
This is particularly the case for Chevron and Shell, both of which have been implicated in major human rights violations in Nigeria. Chevron has been accused of recruiting and supplying Nigerian military forces involved in massacres of environmental protesters in the oil-rich Niger Delta, and Shell has faced charges of complicity in torture and other human rights abuses against the Ogoni people of southern Nigeria.
With this in mind, the Ukrainian people – whether in the east of the country or the west – might want to rethink what is meant by “energy independence,” and whether the future they seek can truly be met by placing their hopes in the benevolence of foreign oil and gas companies.
Nat Parry is the co-author of Neck Deep: The Disastrous Presidency of George W. Bush.
17 Comments on "Beneath the Ukraine Crisis: Shale Gas"
Northwest Resident on Fri, 25th Apr 2014 3:06 pm
While I don’t have any doubt but that the oil majors would engage in any amount of murder, massacres or other dirty tricks deemed necessary to get that oil, I DO doubt that any of the oil majors consider Ukraine shale gas worth the effort. If they can’t make enough of a profit on shale gas in the USA to make it worth their while, how would they expect to do any better in Ukraine? Cheaper labor, maybe? Total absence of environmental rules and regulations — that would maybe save a few bucks in the production process — but enough to risk getting mired in a Ukrainian/Russian civil war? I doubt it.
Anyway, how are the oil companies going to drill enough holes here in USA to keep the “shale oil glut” going if they start shipping drilling rigs, equipment and experienced drillers off to Ukraine?
Plantagenet on Fri, 25th Apr 2014 3:20 pm
Its nutty to blame “foreign oil companies” for Ukraines probems. Its Putin and Russian that have invaded Ukraine, not Chevron.
penury on Fri, 25th Apr 2014 4:11 pm
If the posters here have forgotten what really transpired in Ukraine I think Victoria”s statement about the E.U. can be applied to them.
Makati1 on Fri, 25th Apr 2014 7:15 pm
Plant, Russia did not invade Ukraine. But then, you have been suckered in by the Ministry of Propaganda again. It’s the US and NATO that invaded Ukraine with $5B to buy the terrorists now in control.
I see a civil war and Russia stepping in to stop it. Then we will see if NATO has the guts to go up against Russia again. It is going to be an interesting summer.
rockman on Fri, 25th Apr 2014 9:55 pm
“Ukraine has Europe’s third-largest shale gas reserves at 42 trillion cubic feet, according to the U.S. Energy Information Administration”. Once again utter BS impersonating as facts. The EIA actually reports zero shale gas RESERVES in the Ukraine. But there is a wide range of shale gas RESOURCES. And in their own words how does the EIA currently view those RESOURCES: “It is yet unknown just how much of these deposits is technically recoverable.” Their words…not mine. And remember what “technically recoverable” means: that which can be produced even if not profitable.
And the EIA thoughts on the situation with Shell: “According to an optimist scenario, Shell would start industrial-scale shale gas extraction not sooner than in 2017. However, it is not yet known whether shale gas extraction in Ukraine will be profitable”. Again their exact words…not mine.
So again we read the words of someone lacking the ability to do a 60 second web search (as I just did) to determine exactly what the EIA reports or a liar that assumes a significant portion of it’s audience doesn’t bother to fact check.
The Ukraine may one day produce a lot of NG from their shales. Or not. Time (and only time…not some idiot or liar) will tell.
Arthur on Sat, 26th Apr 2014 12:58 am
What is happening in the Ukraine now has little to do with oil and gas. In reality it is an attempt by the US lead west to pull the Ukrainian carpet from under Russia’s feet and install a puppet government in Kiev and they succeeded. Russia responded by, let’s say, encourage a willing Crimean population to ask for Russian Federation membership, which Moscow benevolently accepted. Main reason: Sevastopel and the only warm water marine base Russia has, not land grab. Russia allready has more land than it can handle. In short, this is a fight about satellites. Meanwhile, the Ukraine is in free fall and it is very difficult to see any easy solution. There is no clear border separating ethnic groups, like in Czevhoslovakia or Britain or Belgium. This could be the next Yugoslavia. On the other hand, as of yet there is nowhere a clear majority for joining Russia, the Crimea was the exception. The only solution is a devoluted confederation a la Switzerland.
GregT on Sat, 26th Apr 2014 1:04 am
The Empire is crumbling. This may very well be the last kick at the can for a NWO.
Also, the military industrial complex needs a new war. Nothing amasses huge profits, like blowing shit up. Oh ya, and the shareholders demand a substantial ROI.
Happy days are here again! All in the guise of liberty, justice, democracy, and freedom.
Arthur on Sat, 26th Apr 2014 3:27 am
You can’t get it much clearer than this:
http://tinyurl.com/l7s44ke
The ‘New World Order’ is not a concept from ‘conspiratorial minded internet kooks’ like yours faithfully.lol…
It is American diplomats using it themselves:
The End of the New World Order
Christopher R. Hill, former US Assistant Secretary of State for East Asia, says that Russia now officially has left the NWO [*], away from globalized institutions and the dollar.
What he says about the Ukraine is BS. Russia has no ambition to ‘re-take’ the Ukraine, only to keep NATO out. Russia’s grand strategy is to keep America out, not the EU. Russia has no problems with greater European involvement in the Ukraine, like investment or energy projects, as long as it is not directed against Russia. Russia prefers Europe over China as the strategic partner for the future. And that is precisely what Washington tries to prevent. Because, if Paris-Berlin-Moscow succeeds (750 million Europeans in one northern economic and military alliance), the roles will be reversed, and America would be a junior partner within the European world, ranging from Lissabon-Wladiwostok-Anchorage-Boston. And certain circles in New York and London would hate to see that happening. It is likely going to happen anyway.
iwallerstein . com/parisberlinmoscow-axis/
[*] just like Germany did in 1933
Arthur on Sat, 26th Apr 2014 3:31 am
[sorry for the double posting, but the previous was messed up]
You can’t get it much clearer than this:
http://tinyurl.com/l7s44ke
The ‘New World Order’ is not a concept from ‘conspiratorial minded internet kooks’ like yours faithfully.lol…
It is American diplomats using it themselves:
The End of the New World Order
Christopher R. Hill, former US Assistant Secretary of State for East Asia, says that Russia now officially has left the NWO [*], away from globalized institutions and the dollar.
What he says about the Ukraine is BS. Russia has no ambition to ‘re-take’ the Ukraine, only to keep NATO out. Russia’s grand strategy is to keep America out, not the EU. Russia has no problems with greater European involvement in the Ukraine, like investment or energy projects, as long as it is not directed against Russia. Russia prefers Europe over China as the strategic partner for the future. And that is precisely what Washington tries to prevent. Because, if Paris-Berlin-Moscow succeeds (750 million Europeans in one northern economic and military alliance), the roles will be reversed, and America would be a junior partner within the European world, ranging from Lissabon-Wladiwostok-Anchorage-Boston. And certain circles in New York and London would hate to see that happening. It is likely going to happen anyway.
iwallerstein . com/parisberlinmoscow-axis/
[*] just like Germany did in 1933
Davy, Hermann, MO on Sat, 26th Apr 2014 7:29 am
What the US leadership is doing is truly dangerous from the point of view of a global interconnected economic system that can tolerate little disruption in its current state. The global economic system never recovered from 2008 it just replaced near collapse with debt monitorization by all large economies and deficit spending by most developing economies. These developing economies are dependent on this deficit spending by the financial repression by the developed world central banks. This global arrangement is dependent on cheap money and liquidity. Liquidity is dependent on confidence. What kind of global economic system confidence will there be if we see a collapsing Ukraine? What kind of confidence will we see with a NATO and Russia in conflict? Russia and Europe are not blameless. They have allowed this game to play out. Russia has chosen to turn its back on the western dominated global system. This gamble may play out in Russia’s favor but only for a short time. There is no decoupling of an economy from global trade especially a basket case banana republic run by a dictatorship of oligarchs and tough man Putin. This could be the black swan tipping point. If not this than shortly the financial system. If not the financial system then oil and food as the next brick wall. We see an obstacle course for the global economy that faces increasing inclusive and reinforcing problems that as the obstacle course progresses become predicaments until finally ending at an abyss. The abyss is AGW and the cliff is the true ending point if we can muddle through all the other problems. IMHO it is doubtful we will make it past a financial collapse but there is no way to know this because history has no examples of global economic collapse.
Boat on Sat, 26th Apr 2014 9:59 am
Arthur
The ‘New World Order’ is not a concept from ‘conspiratorial minded internet kooks’ like yours faithfully.lol…
I agree lol, good to see some humor along with some of your wild assertions from time to time.
Why Russia decided to turn it’s back on a western dominated global system I have no clue. With their advantage of petro dollars it seems they should do well within that system and with a natural trade partner like China so close so much the better.
Russia has a better chance of unleashing the power of their people and better life styles under a global system that uses the same rules for everyone.
The biggest power of any country are the ones that open education and free expression of ideas.
Northwest Resident on Sat, 26th Apr 2014 10:04 am
Saturday morning speculation: The Ukraine “crisis” has been engineered to accomplish a number of long term goals beneficial to Western Europe, Russia and America — and Ukraine/Crimea too.
This gives Russia the opportunity to mobilize their military, get them on the move, galvanized and operational. I gives Russia an excuse to increase military spending instead of spending money on social programs, infrastructure and other things that the Russian people might otherwise expect. With the threat of war on their doorstep, the Russian people will accept any level of hardship imposed by austere government measures. With the global economic collapse right around the corner (my strong suspicion), Russia NEEDS to have its military and citizens in the right frame of mind, and this Ukraine crisis is the perfect excuse. Also, it gives European and American governments the perfect excuse to mobilize and maneuver/position troops in and around Ukraine, all the better to prepare to handle restless and rioting populations once TSHTF. And ultimately, Ukraine needs to be divided up into nearly one hundred percent pro-Russian Eastern Ukraine and then probably into a few or more divisions of Western Ukraine, with one area falling under Poland’s control, another under Germany’s control, at least.
The unstated and urgent driving motivation behind the Ukraine crisis could very well be the coming collapse — and the need for all TPTB to position their chess pieces strategically in and around Ukraine to handle the coming storm.
rockman on Sat, 26th Apr 2014 12:44 pm
NR – IMHO you’re out of your freaking mind! LOL. Not really…just teasing. Any and all of your speculations could correct…along with a number of other factors. That’s the inherent problem with coming up with THE cause of such predicaments. Use Germany as an example: there are likely multiple reasons for them to be simultaneously for and against sanctions against Russia. I can imagine there are two very divided camps in the US gov’t on how to deal with Russia over the Ukraine.
So where do you lay the source of any one US policy: the MIC, election pressures, honest moral outrage, commercial interests, etc. The answer IMHO is an ever shifting platform of goals. We all have our favorite causes de jour we like to run with. And so do our political leaders. So decisions are made. Sometimes actions…sometimes inaction. And sometimes by compromise which may be the best way to go. Sometimes not so much as Mr. Chamberlain discovered with Adolf back in the 30’s.
bobinget on Sat, 26th Apr 2014 1:17 pm
First of all it’s Argentina, NOT Ukraine where Chevron
along with several other ‘majors’ are investing big bucks to get at shale. Slight geography error.
Putin needs to keep Ukraine ‘off balance’ but short of
a tits up invasion. The author is right about the essence of his complaint. It is all about oil. Ukrainian oil? Not so much. If you believe disinformation, so much the better. As I’ve said, several times on these pages President Putin is after catching bigger fish.
Russia and Iran are allied on several fronts. Iran
at this stage has great religious and political influence
over Iraq. This powerhouse trifecta can, once the Syrian Proxy war is contained, dictate world oil prices.
Only recently has US State Dept. and Pentagon realized
this classic rope-a-dope. To little too, to late the US
is shipping heavy weapons to Syrian rebel forces.
(this is also a classic “tell”)
Just watch. Putin will keep up this false ‘crisis’ for as long as it takes to distract the world away for monstrous atrocities, war crimes certainly, against great numbers of Syrians. (four million are starving to death. Denied food donated by NGOs)
This is certainly a deadly crisis in so many ways. The least of which is in Ukraine.
If there’s oil in Ukraine it’s off-shore in deep water.
As only major oil companies have the know-how and equipment for deep drilling, years away in any case.
Mark my words, in less than a year the ‘new’ OPEC will include Russia and exclude KSA and Kuwait, perhaps
Northwest Resident on Sat, 26th Apr 2014 1:26 pm
Hey rockman — Looks like you’ve got me figured out…:-) But seriously, how many times have we seen the USA and other governments manipulate political events to provide cover for movement and positioning of troops? War On Terror, for example? IF we are heading for energy shortfalls, and IF we are heading for global food shortages, and IF we are heading for economic collapse — all of which seem apparent to me — then you can bet that those countries bordering the Balkans and other restive and poorly ruled countries (i.e., Ukraine) are VERY concerned about breakdown of social order along their borders. In that context, it makes total sense for Russia, Western Europe and America to either make or find excuses to mobilize and position troops along the borders. Ukraine crisis, manufactured or not, sure provides a convenient excuse to do just that for all parties concerned. That is logical, unlike starting an all-out proxy war in Ukraine or conspiring to start a war with Russia, neither of which serve any useful purpose whatsoever and in fact just the opposite, would threaten chaos and mayhem against everybody. Makes sense to me. Pure speculation, but that’s all anybody else has so what the heck. Outta my mind — from time to time, no doubt…:-)
Boat on Sat, 26th Apr 2014 3:08 pm
Was it planned by Russia?
http://news.yahoo.com/putin-preemptive-medal-honor-094500663–politics.html
rockman on Sat, 26th Apr 2014 4:54 pm
NR – I agree. I suspect none of the major players have a simple single goal in mind. I also suspect that the plan anyone has in mind isn’t static and may be evolving in ways they have trouble anticipating. As I pointed out to someone on one of projects that isn’t going like I assumed: there is the plan and then there’s what actually happens. Sometimes being able to react positively is more important then having a good plan that doesn’t work.