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Shale Gas Loosens Russia’s Grip on Ukraine

Shale gas is coming to Ukraine, and Russia is fuming. Earlier today Ukraine signed a groundbreaking deal, potentially worth $10 billion, with Royal Dutch Shell to develop the country’s vast natural gas resources. The Financial Times has the story:

The production-sharing agreement . . . signed in Davos in the presence of President Viktor Yanukovich of Ukraine and Peter Voser, Shell’s chief executive, could become by far the largest foray by foreign investors into the former Soviet republic. It is a potentially big step in reducing Ukraine’s reliance on costly imports from Gazprom in what is the Russian monopoly’s largest foreign customer.

Ukraine, sandwiched between Russia and the EU, has long played the two against one another to strengthen its own hand. The EU has courted the country with promises of an association agreement that would give the former Soviet country access to the European single market. For its part, Russia has tried to expand its influence with both carrot (inviting Ukraine to join its nascent customs union with Belarus and Kazakhstan) and stick (twice cutting off gas supplies midwinter since 2006).

But shale gas gives Ukraine leverage of its own. Sitting on Europe’s third largest reserves of natural gas, Ukraine is already in talks with ExxonMobil and Chevron to further develop its resources and reduce its dependence on expensive Russian gas. Ukraine’s newly appointed Energy Minister Eduard Stavytsky, clearly enjoying this newfound advantage, told the Financial Times, “If our Russian colleagues at Gazprom do not agree to lower gas prices, they risk losing their biggest customer.”

The politics of energy have turned decisively against Russia.

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