Western Ukrainian Local Authorities Reject Shale Gas Project with Chevron

By Oleg Varfolomeyev

Two maverick regional councils, dominated by the far-right political party Freedom, are threatening to derail Chevron’s plans to drill for shale gas in Ukraine. This may discourage potential investors in the Ukrainian energy sector and make it harder for the government of President Viktor Yanukovych to attain energy security from Russia.

According to Ukrainian laws, potential investors in gas projects need to have their projects approved by not only the government in Kyiv, but also the local communities concerned. This has apparently become the main barrier for Chevron. Meanwhile, its rival Shell, which won a government tender to develop unconventional gas fields in eastern Ukraine simultaneously with Chevron in May 2012, has already started drilling—the local councils dominated by pro-government parties quickly approved their draft production sharing agreement (PSA). Chevron, on the other hand, ran into problems in the west of the country. On August 20, the council of Ivano-Frankivsk rejected a draft PSA with Chevron to drill in the Oleska field. Out of the 114 councilors, only 40 voted in favor of the draft. Prime Minister Mykola Azarov criticized the council on August 21, saying that it ignored Ukraine’s national interests (Ukrainski Novyny, August 21).

Oleska field stretches from Ivano-Frankivsk to Lviv. The Lviv Region council is also expected to reject the draft PSA later this fall as both councils are dominated by Freedom. This party, first, opposes the Party of Regions government and, second, is highly nativist in its orientation and does not trust foreigners. Speaking about shale gas, Freedom representatives usually cite environmental concerns. However, the head the Freedom caucus in the Ivano-Frankivsk council, Vasyl Popovych, said in a recent interview that the council also wanted Chevron and the central government to share more of their future profits with the local community. The councilors did not trust a promise contained in the draft PSA that Chevron could give $500 million for the region’s development each year, he said. “We will not be satisfied with such humanitarian aid,” said Popovych. He also argued that the central government ignored the amendments to the draft that his council proposed, signifying that Kyiv was not ready for dialogue (Den, August 28).

Despite the warning signals from Ivano-Frankivsk, Ukrainian Energy Minister Eduard Stavytsky was upbeat on the country’s overall shale gas development prospects, commenting on the Oleska situation on August 28. He said that environmental requirements to the project would be toughened and that the councilors’ proposals were taken into account. Consequently, Stavytsky predicted, the two regional councils would approve a rewritten draft PSA within two weeks (UNIAN, August 28).

Stavytsky’s prediction has not come true. After two weeks, nothing has changed, judging by a recent interview with Yury Romanyuk, an opposition councilor from Ivano-Frankivsk who sits on the committee studying the draft PSA. He said the most recent draft sent to the council proposed “nothing more than a more exquisite method to steal property—land—from the people.” No guarantees yet exist that the local communities would be entitled to any share of profit, and there have been no official environmental guarantees from the government, said Romanyuk (Den, September 10). The Ivano-Frankivsk council is scheduled to vote on the draft PSA again this month. If it rejects the deal, the project may fall through despite the Ukrainian government’s proclaimed commitment to energy independence.