Government increases nation's energy security

The Cabinet of Ministers has approved the Production Sharing Agreement (PSA) related to the development of new large mineral deposits in the Black Sea, the Information-analytical Bulletin of the Cabinet of Ministers of Ukraine informs.

According to the Agreement, subsidiaries of the Italian Eni and the French Electricite de France (EDF) in conjunction with the Ukrainian GAO "Chornomornaftogaz" and "Water of Ukraine" will develop the hydrocarbon deposit areas Subbotino, Abikha, Mayachnaya and Kavkazskaya on the Black Sea shelf.

According to the Ministry of Ecology and Natural Resources of Ukraine, the exploration phase pending commercial production at each of the four deposit areas will be funded by Eni and EDF, whose product share will be 55%.

The share of the Ukrainian investment companies (45%) will be paid back during the future sales of the Ukrainian-owned hydrocarbons.

In the absence of a commercial discovery and completion of the project to the stage of industrial production, no foreign investment will be refunded. All the risks associated with exploration and extraction of oil and gas, will be fully borne by foreign partners, Environment Ministry officials say.

Experts note that the signing of the PSA is fully in accordance with the Law "On production sharing agreements."

Experts say the advisability and feasibility of the PSA in relation to Subbotino, Abi kha, Mayachnaya and Kavkazskaya is determined by a number of factors.

The state today does not have sufficients funds or facilities to develop new large mineral deposits.

An important factor in attracting the largest energy companies from around the world is that they have the latest technology and equipment to ensure effective prospecting, exploration and development of promising unexplored mineral deposits.

Another factor is that the mineral deposits are developed in a particularly difficult environment (subsoil and offshore deposits).

Energy market say the estimated investment in this project will amount to 4 billion USD. A successful project implementation would boost the annual oil and gas production in Ukraine by 2-3 million tons of standard coal by the end of the decade.

The updated Energy Strategy of Ukraine 2030 envisions an annual domestic gas extraction increase from 21 billion cubic meters to 44.4 billion cubic meters. The gas imports will be cut to 5 billion cubic meters.

Gas production production growth is expected to be achieved through development of the deep-water part of the Black Sea shelf (estimated reserves are about 4 to 13 trillion cubic meters), as well as of unconventional shale gas and coal bed methane.

Energy market note government's progress in ensuring Ukraine's energy. In addition to the expected signing of the PSA with Eni and EDF, Ukraine last year tendered a PSA for the Scythian field on the Black Sea shelf, which was awarded to the U.S. ExxonMobil.

A PSA for the Kerch shelf of the Black Sea is held by Vanco Prykerchenska. In 2013, the government signed a PSA with Chevron, Shell and ExxonMobil for shale gas extraction at the Olesky, Yuzovsky and Scythian sites.