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Ukraine’s Acting Minister of Energy and Mines,Yuriy Prodan, met with Royal Dutch Shell’s (Shell Oil) Ukraine VP yesterday to discuss natural gas production plans in the eastern part of the country. It’s estimated that Ukraine sits on top of a quarter of the world’s natural gas reserves. The agreement for Shell to produce natural gas in the region was signed a year ago and exploratory operations have been completed. The plan is for Shell to use fracking to extract the shale gas.

The announcement was posted on Ukraine’s government website which offers frequent updates on the interim government’s activities in a multi-lingual formal. (Pages that haven’t been pre-translated into English can be translated by your browser.)

Shell ‘s description of the project is posted on its website.
Shell Oil Ukraine website screen shot.
The turmoil in Kyiv didn’t hinder Shell’s plans which were confirmed through Ukraine’s Ambassador to the Netherlands in January. Now it appears that Shell will proceed normally even with the volatile situation involving Crimea and Russia.
Ambassador of Ukraine to the Kingdom of the Netherlands met with Royal Dutch Shell representatives

On January 22, 2014 the Ambassador of Ukraine to the Netherlands, Olexander Horin, met with Vice President Shell Ukraine Graham Tiley . . .

Broad range of issues concerning cooperation between Shell and Ukraine was discussed during the meeting including company's projects in Kharkiv and Donetsk regions, as well as implementation of the arrangements achieved at the meeting  . . .

Shell’s representatives reconfirmed company’s interest to further deepen its cooperation with Ukraine.

Ukraine also signed cooperative agreements with Chevron and Exxon Mobil a year ago and the deals were touted as “energy independence” for Ukraine which depends on Russia for its supply. There was a gas war between the two countries when Yulia Tymoshenko was in office as Prime Minister and Russia cut the supply at the beginning of 2009.

However, Russia also depends on natural gas. Its sales through the state-owned company, Gazprom, are an important source of revenue. Russia also depends on the pipelines that traverse Ukraine to transport natural gas to Austria, Bulgaria, Croatia, Czech Republic, Hungary, Moldova, Romania, Serbia, Slovakia,and others. The risk of losing access to these markets to competition from a natural gas producing Ukraine would be reason enough for Putin’s tantrum.

Most Americans have no way of talking about Ukraine today, because they don’t have any real knowledge or information about it. Lately, the talk about Ukraine crossed a boundary into the unusual.

Tossing around words like fascist and Nazi would jeopardize your credibility until a few weeks ago. Now the public discourse sounds like a schoolyard name calling contest. Lurid pictures of grimy, menacing guttersnipes sporting the accessories and insignia of 1930s Germany are passed around with claims that imply neo-Nazis seized power in Ukraine. It isn't true and Vladimir Putin isn't Hitler either.

If you want current updated information about the activities of Ukraine’s government, browse its website.
Government of Ukraine website screen shot.
Ukraine's history predates Maidan. Its people have agency in society and government.  In the last 10 years. Ukrainians witnessed a gruesome assassination attempt on their President who was poisoned, a revolution that failed to improve conditions, leaders who looted the country’s wealth, and its brotherly neighbor, Russia, abruptly cut off natural gas supplies in mid-winter. The election of a new government in 2010 made matters worse when President Yanukovych turned out to be a despot who rewrote the constitution, jailed his opponents, and rigged the 2012 parliamentary elections.

Its tempting to blame the IMF, the World Bank, or the EU for Ukraine's problems. Saying so doesn't make it so.

Look at Ukraine’s budget. The government raises a lot of revenue. The amount, as a percentage of GDP, is comparable to revenue collected in Western European countries. A strong social safety net is written into Ukraine’s constitution, too, but the country has nothing to show for the amount of money it spends.

Average life expectancy is noticeably lower than any country in Europe, and deaths exceed births and the country’s population declined by more than 10% in the last 20 years.

Personal income is far lower than anywhere in Europe. It averages less than $6,000 a year in Kyiv and under $4,000 in the rest of the country. About 29% of the population are pensioners who receive an average of $2,000 a year. The number of students enrolled in schools is shrinking faster than the general population. This is an impoverished country. It is assumed that a substantial portion of the economy must be underground.

The outstanding feature of Ukraine’s economic woes is the amount of money spent on natural gas subsidies.  Instead of prioritizing funds for education, health, pensions, or welfare, Ukraine spends more on subsidies paid to households for natural gas consumption.  The natural gas subsidies have been studied by a number of observers that noted concerns. I’ll skip the statistics because the use of metering to measure consumption isn't standard in Ukraine. Instead, consumption is estimated. More than one study determined that the subsidies are regressive, with a disproportionate amount paid to the wealthiest.  These conditions are far worse than any austerity pushed by neo-liberal economists.

It could be considered provocative for Big Oil from Western Europe or the US to set up business right on Ukraine’s border with Russia. Ukraine’s profile attracts global business corporations with money, power, and influence that easily overpowers the national government of a poor country. Shell’s annual revenue is more than the entire GDP of Ukraine. The political party in power makes no difference and there’s no need for a coup d’etat. It would be superfluous. The overthrow of Yanukovych was barely a speed bump to Shell.

Extreme nationalism and fascist tendencies are as obsolete as national governments. The nation state with its sovereign status is superseded by global business that makes the rules it wants without regard for any citizen’s interest.

A greater economic integration, if it ever comes about, would open the door for mass surveillance. The key is access to Ukraine’s and eventually Russia’s banking and financial transactions. This may be the primary reason for  Putin’s tantrum and the ultimatum he  gave Ukraine to choose either the EU or Russia, but not both. Open doors would invite the  long arm of the NSA to reach into Russia. As Europe recently learned, the Patriot Act has an extraterritoriality clause that the US uses for classified national security reasons.

For now, Russia is digging in its heels in Crimea. It would be interesting to hear Putin say whether he ever considered developing the shale gas fields just inside Ukraine's border.

The primary sources of information for this analysis include:

The Kremlin’s English language website where transcripts of press conferences given by Putin are archived.

The Government of Ukraine’s website (multi-lingual with most pages available in English) which features information about the Parliament, the Cabiinet of Ministers, the Judicial system, and the State and Local Governments.

The State Statistics Service of Ukraine multi-lingual with English available)

The Council of the European Union

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Comment Preferences

  •  Good points but as you noted earlier Ukrainian (3+ / 0-)
    Recommended by:
    Lawrence, GAS, Just Bob

    government supported fracking as well. Given how much money Ukraine spends on Russian gas, it's hard to believe that any Ukrainian government wouldn't support fracking.  Shell is involved in various projects in Russia as well (e.g. Sakhalin-II, fracking in Siberia, etc.).

    http://www.bloomberg.com/...

    And surveillance? Given leaked conversations, it's clear that Russia is no less involved in surveillance than NSA.

    •  it's about who profits? (1+ / 0-)
      Recommended by:
      Just Bob

      It's not an environmental issue, it's markets. That's why NATO has been encroaching, whatever promises were made to Russia, money and banker trump agreements.  It's not EU it's NATO, business without travel permits?

      So, Putin is breaking one too?  

  •  Why did Putin invade? (1+ / 0-)
    Recommended by:
    Mark Lippman

    These plans were in place a year ago.

    Are you saying Putin was justified in invading?

    •  And you've got me here (2+ / 0-)
      Recommended by:
      Lawrence, anna shane
      Open doors would invite the  long arm of the NSA to reach into Russia. As Europe recently learned, the Patriot Act has an extraterritoriality clause that the US uses for classified national security reasons.
      You do understand that Putin was part of the KGB at some point? Are you saying he want's the spying on citizens to be sole sourced? ;)
      •  I suspect that Putin absolutely (3+ / 0-)
        Recommended by:
        Yoshimi, Lawrence, FG

        wants spying to be sole sourced.

        The number of children and teens killed by guns in one year would fill 134 classrooms of 20 students each. (Chlldren's Defense Fund, 2013)

        by nzanne on Fri Mar 07, 2014 at 01:28:52 PM PST

        [ Parent ]

      •  No. Mass surveillance is Part 1 of a multi-part (1+ / 0-)
        Recommended by:
        Just Bob

        story. When the NSA collects information, analyzes it, and stores it, there's barely any noticeable impact to the public. Out of sight out of mind. The public doesn't perceive a risk.

        The NSA's practices are for counter terrorism so the story goes. Foreigners are fair game, by US law, and inevitably, the NSA comes across a pattern that fits a suspicious profile. Looking deeper it may discover that there's no terrorism in the picture but there's something else objectionable. The matter is referred to the US Treasury which pulls the strings to confiscate and freeze assets in a foreign bank for national security reasons.

        The global system of interconnected banks that the NSA uses to monitor transactions includes North America, Europe, other locations, but it excludes Russia. What goes on there is invisible and out of reach. Otherwise i can think of at least one person who wouldn't be able to live a semi-normal life there because, assuming he has at least one bank account, his assets would be confiscated.

        Putin doesn't care about him, but he does care about keeping things dark, opaque, out of reach.

        There is no existence without doubt.

        by Mark Lippman on Fri Mar 07, 2014 at 02:15:11 PM PST

        [ Parent ]

    •  I will tell you the facts that I can document. (1+ / 0-)
      Recommended by:
      whizdom

      Ukraine's story has numerous villains. To focus on one or the other you'd have to leave some of the picture outside the frame.  Think of this as a holistic approach.

      The story has been percolating for years. Most of it is untold.

      Read the December 19 press conference Putin gave. (It was covered in the press for the pardons he gave to Pussy Riot et al.)

      Putin also announced that day the deal he was offering to Ukraine for natural gas. There was a question from Ukrainian reporter, ROMAN TSYMBALYUK, who said Russia had been choking Ukraine for 3 years. It's near the top.

      Yanukovych inherited a track toward the EU and he signed to reconfirm as recently as December 2011. Putin conjured up the idea of a Eurasian Union made up of the former Commonwealth of Independent States and he wanted Ukraine to join. Yanukovych crossed Putin big-time by signing those shale gas agreements. Think about it. Shutting the gas supply in 2009 is just the tip of Russia's ruthlessness with Ukraine.  Bringing in outside producers was the payback. All Putin could do is try to stop it. He extorted Yanukovych to cancel the EU agreement which kicked off the protests.

      I don't think anyone foresaw where it would lead. Putin is dead set against having any outside company come in and set up shop on his border. It comes down to who's more determined. Shell or Putin?

      There is no existence without doubt.

      by Mark Lippman on Fri Mar 07, 2014 at 01:58:59 PM PST

      [ Parent ]

  •  The vampire squid is on the march and is out to (3+ / 0-)
    Recommended by:
    Paleo, Azazello, chuckvw

    loot Ukraine.

    We're shocked by a naked nipple, but not by naked aggression.

    by Lepanto on Fri Mar 07, 2014 at 01:23:04 PM PST

  •  Well, indirectly. (3+ / 0-)
    Recommended by:
    erratic, nzanne, Mark Lippman

    Ukrainian general intransigence on natural gas (in particular, shipping it through their territory) is a good bit of Putin's motivation.

    I don't know that Shell's activities figure into it too much, save that it could make the Ukrainian government less vulnerable to Russian blackmail.

    I'm sure Shell will proceed with development regardless of which government they end up having to mail royalty checks to.

    •  It's not just Shell in the east, it's also Chevron (2+ / 0-)
      Recommended by:
      Mark Lippman, Just Bob

      in the west of Ukraine, where the reserves are potentially even far greater.  They have the potential to not only make Ukraine energy independent, but also completely replace Russia's natural gas exports to E.U. nations.

      An independent Ukraine developing these resources would become wealthy while Russia's economy would take a big hit and Russia wouldn't be able to use the natural gas cudgel to blackmail other European countries anymore.

      Plus, Ukraine has some good renewable energy resources, such as solar in southern Ukraine, wind in western Ukraine, and biomass throughout the whole country.

      Putin is mad because he knows that Russia can't become a dominant imperial power again without Ukraine.

      "A candle loses nothing by lighting another candle" - Mohammed Nabbous, R.I.P.

      by Lawrence on Fri Mar 07, 2014 at 01:55:57 PM PST

      [ Parent ]

      •  You got it. This is high stakes. Russia relies on (4+ / 0-)
        Recommended by:
        erratic, Lawrence, bbctooman, Just Bob

        its oil & gas revenue. It covers 52% of the Russian government's spending.

        The fact that they didn't develop that field on their friggin' doorstep tells you something. They only care about exploiting and neglect development of new fields, even in their own country, at a sufficient pace to maintain steady production. Consequently, production is already declining and Russia has to scramble.  So crooked they screw themselves.

        There is no existence without doubt.

        by Mark Lippman on Fri Mar 07, 2014 at 02:27:50 PM PST

        [ Parent ]

      •  Polish Experience with Fracking (3+ / 0-)
        Recommended by:
        Just Bob, chuckvw, Lawrence

        I would advise against overselling the potential for fracking in Ukraine and Eastern Europe.  The experience next door in Poland suggests that these pipe dreams are unlikely to pan out.

        EIA estimates initially showed Poland had 5.3 trillion cubic meters of gas, but Polish geological studies, using different methodologies, estimate potential at only a fraction of that. And according to the EIA's new assessment report from June, potential has been reduced by 20 percent, in part because of more complicated geological conditions for retrieving shale gas.

        It's a familiar tale in Europe, where companies weigh whether harder-to-access gas is commercially viable with current technology and unclear regulations that could affect investment gains. Last year, ExxonMobil left Poland after drilling two vertical test wells; two other major energy companies followed suit this spring.

        This geography is likely to extend to shale plays in Western Ukraine, and initial estimates for fracking potential in Poland have shrank by 90%, implying something like 530 billion cubic meters in reserves.  For comparison, pipelines exporting either directly from the Russian Federation, or transiting Belarus/Ukraine, provided the EU ~15 billion cubic meters in December 2013 alone. About half of this transited Ukraine

        So even assuming a 100% recovery rate, this is something less than a decade's worth of gas at current import rates. When you look at the actual numbers, the pipe dream aspect of all this becomes very apparent, very fast.  The same can be said of LNG imports to the EU from North America, which would require a six fold increase in import facilities in Europe to replace Russian gas imports.  And that is before we even talk the cost to construct export terminals in North America, and the fact that North American gas prices are at their highest since 2008.  There have been structural shifts in US consumption that make exporting a hard sell. Foremost among these has been the renewed replacement of coal fired base load plants with nat gas.  Back in 2008, much of the US fertilizer industry was ready to close shop and ship out to Russia, Trinidad, or North Africa. So ironically, trying to frack Europe free of Russian gas imports, may create a new dependence on Russian fertilizer imports in North America.    

        http://www.economicpopulist.org

        by ManfromMiddletown on Fri Mar 07, 2014 at 08:43:13 PM PST

        [ Parent ]

        •  Another aspect of the LNG market in Ukraine (1+ / 0-)
          Recommended by:
          chuckvw

          is that it's very seasonal. That makes commercial development  by foreign companies of port and storage facilities much less attractive.

          I'm a Vietnam Era vet. I'm also an Erma Bombeck Era vet. When cussing me out and calling me names please indicate which vet you would like to respond to your world changing thoughts.

          by Just Bob on Fri Mar 07, 2014 at 09:39:32 PM PST

          [ Parent ]

    •  the march toward Russia (1+ / 0-)
      Recommended by:
      chuckvw

      was pushed by Oil companies and arms manufacturers. NATO is the road.

    •  Ukraine already has substantial production. (4+ / 0-)
      Recommended by:
      erratic, Lawrence, bbctooman, Just Bob

      This single project would make it self sufficient if it produces what Shell says. Other projects would make Ukraine an exporter.

      There is no existence without doubt.

      by Mark Lippman on Fri Mar 07, 2014 at 02:20:20 PM PST

      [ Parent ]

  •  You are correct about this being a big factor (4+ / 0-)
    Recommended by:
    erratic, nzanne, Mark Lippman, FG

    in the whole equation.

    If Ukraine develops its unconventional gas reserves, EU energy efficiency continues to increase, and renewables continue to grow rapidly, then Russia won't have any European customers for its overpriced natural gas anymore and the Russian economy will take a 50 billion dollar hit per year.  And this would happen fairly soon - some time between 2020 and 2025.

    Not sure that the NSA is much of a factor in this, though.  You kind of distracted from the quality of your diary by plugging that in, because the NSA doesn't need Ukraine to access Russia...

    "A candle loses nothing by lighting another candle" - Mohammed Nabbous, R.I.P.

    by Lawrence on Fri Mar 07, 2014 at 01:43:52 PM PST

  •  Good grief...another piece to the puzzle. (3+ / 0-)
    Recommended by:
    Mark Lippman, erratic, Just Bob
  •  Thanks for this diary! (2+ / 0-)
    Recommended by:
    Just Bob, Mark Lippman

    I feel it should have gotten a lot more attention - it provides very relevant information on a topic that's been generating a lot of hot air on DK recently.

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