Ukraine signs blockbuster shale gas deal with Chevron Corp.

In a landmark deal, the Ukrainian government has announced a partnership with Chevron Corp. to develop shale gas in the 1.6 million acres of The Oleska Block in western Ukraine.

After nearly 18 months of negotiations, the deal will allow Ukraine to further distance itself from Russia’s expensive natural gas exports and become energy independent by 2020.

“Agreement with Shell and Chevron will allow us by 2020 to become self-sufficient in gas, and, according to the optimistic scenario, to become an exporter,” said President Victor Yanukovych prior to the signing.

Providing Ukraine with a substantially cheaper alternative to Russian gas, the Chevron Corp. deal is set to have lasting ramifications throughout the country.

Currently highly dependent on Russian energy, Ukraine plans to import over 27 billion cubic meters of gas in 2013 alone, while paying roughly $400 per 1,000 cubic meters.

With Chevron also pledging to invest in production, drilling and infrastructure, the contract has the potential to create tens of thousands of jobs.

“This strategically-important project provides an opportunity for Ukraine to achieve greater energy security, stimulate economic growth, and create jobs,” said Jay Johnson, president of Chevron Europe, Eurasia and Middle East, in a statement.

A significant contract for the entire European Union, Ukraine’s deal will help provide the region with energy security for the immediate future.

“Kyiv Post” reports that the government scenarios estimate annual extraction could reach 5 billion cubic meters of gas per year once full production capacity is reached. Optimistic government scenarios currently have the potential figure falling between 8-10 billion cubic meters per year.

According to the U.S. Energy Information Administration, Ukraine has Europe’s fourth-largest shale gas reserves. Despite the U.S. Energy Information Administration’s estimate of 1.2 trillion cubic meters, the Ukrainian government estimates that the country’s reserves are much larger, with the Oleska field alone containing 2.98 trillion cubic meters of gas.

The current production sharing agreement will last for as many as 50 years, with the first five years devoted to an exploration phase that includes the acquisition of necessary seismic data and the drilling of exploration wells.