US energy giant Chevron has told Ukraine that it will pull out of a $10bn shale gas exploration project agreed last year, officials said, in a further blow to the country’s war-torn economy and its hopes for an alternative to Russian gas imports.
Valery Chaly, deputy head of Ukraine’s presidential administration, on Monday said he had received “signals” the company wanted to withdraw from the strategically important project.
While Mr Chaly stressed that Kiev was keen to continue negotiations, Chevron said in a statement that it was “premature for us to comment,” adding “we have just delivered to the government of Ukraine our response”.
The cancellation comes months after Royal Dutch Shell, which also signed a multibillion-dollar production sharing agreement last year, froze shale gas exploration in eastern Ukraine amid fighting between government forces and Russian-backed separatists.
The agreements with Shell and Chevron were hailed as game-changing opportunities to unlock Ukraine’s potentially large shale gas reserves and break Kiev’s dependence on costly Russian fuel imports.
Ukraine had also been hoping to attract western investment and knowhow to explore potentially large untapped hydrocarbon reserves off the coast of Crimea before Russia annexed the peninsula in April.
“With oil prices falling, not so great geological findings in nearby countries coming in and Ukraine country risk surging with the war as well as economic instability, it is clear now that the much hoped for shale gas boom and associated multi-billion-dollar investments will not materialise,” said Ukrainian energy analyst Dmytro Marunich.
Chevron lost interest in the western Ukraine shale exploration project after findings in nearby Poland and Lithuania with similar geology showed worse than expected reserves, said a person with knowledge of the situation. Unresolved tax issues also played a role.
The person said Shell was likely to continue “preparations” for its project but exploration would not proceed until fighting in the breakaway regions of eastern Ukraine had stopped and there was clarity over their future status.
Chevron’s decision is another blow for a Ukrainian leadership that rose to power through last winter’s Maidan revolution on promises to break from Moscow and integrate more closely with the EU.
The much-hyped shale gas projects could have lured record investment into the cash-strapped country. The International Monetary Fund earlier this month said there was a $15bn shortfall in its $17bn bailout for Ukraine and warned western governments the gap will need to be filled. Donors have signalled that resources are limited and they expect further reforms from Kiev in return for their support.
The cancellation of the shale gas projects is “darkening an already dark picture,” said Ukrainian economist Andriy Novak.
“Much can be explained by the lack of reforms on the Ukraine government side and it’s a verdict for them that an IMF mission visiting Kiev is basically leaving before the holidays without an agreement on fresh disbursements,” he added.
Pressure increased on Kiev late on Monday when Russia’s Gazprombank announced that it could seize 5.7bn cubic metres of gas — close to half Ukraine’s stockpile — as collateral to cover early repayment for a $842.5m loan to Ostchem, the chemical group controlled by Ukrainian billionaire Dmytro Firtash. A former Gazprom gas trading partner, Mr Firtash is currently in Vienna fighting extradition to the US on corruption charges.