What red cloth is for a Spanish bull, shale gas projects are for some of Ukraine’s politicians and lawmakers.
The prospect of hydraulic fracturing (or fracking) for natural gas in shale and sandstone deep underground – has triggered a frenzy of legal activity including a lawsuit, a suggestion for a moratorium on alternative hydrocarbons and a proposed parliamentary hearing.
Moreover, the rules and laws needed by the industry to operate have often been slow in coming, slowing down the industry’s development in the notoriously energy-inefficient country. Nonetheless, most expect opponents will eventually be placated, and legal problems resolved.
Pro-gas developments
Ukraine’s legal field is a desert when it comes to production of natural gas from shale or sandstone. In a recent interview with the Kyiv Post, Peter Clark, general manager of Chevron, said regulations don’t cover shale gas production; the concept of hydraulic fracturing doesn’t exist in legislation, as don’t horizontal wells of the kind used, among other things.
Clark said the industry is trying to address these issues through the American Chamber of Commerce, which works closely with the Ecology Ministry to patch up the legal gaps.
Vitaly Radchenko, an attorney with CMS McKenna representing Royal Dutch Shell, leads the committee for fuel and energy at the American Chamber of Commerce. He says the rules for gas field development in Ukraine date back to 1971. “Of course, in 40 years, the technologies have changed, but the sub-legal field remains far behind,” Radchenko said.
One of the priorities is new subsoil legislation, which the ecology ministry is currently working on. But after several drafts many of the peculiarities of shale gas production are still not accounted for, Radchenko says.
“The lawmakers don’t understand shale gas,” he says.
The chamber also took part in a project conducted by the U.S. Agency for International Development last year, which analyzed many aspects of the new industry, including legal and environmental issues. Ukraine’s government was heavily involved in this project, too.
It produced a 200-page study, complete with recommendations on how to address legal and other challenges in this area. They are yet to be considered.
In the past year, there have also been a lot of positive changes in the legislation regulating product sharing agreements (PSA), the likes of which was signed between Ukraine and Royal Dutch Shell last month in Davos, Switzerland, and are also being negotiated by Chevron and ExxonMobil, who won tenders for exploration in May last year.
But despite many positive changes for PSAs, some errors were also introduced during the hectic legislative process. For example, a clause was accidentally deleted that allowed the Cabinet of Ministers to delegate supervision over Ukraine’s compliance with the contract to local authorities. “This created legal vacuum,” Radchenko says.
Legal moves against shale gas
There are also plenty of new legal initiatives against the shale gas industry, driven by the far-right Svoboda Party, their ideological nemesis the Communists, and Batkivshchyna, the biggest opposition force in parliament.
All oppositional parties, however, insist they are not against shale gas, but rather want to make its production safer, more transparent and ensure greater benefits for local communities.
Svoboda Party proposed a parliamentary hearing on shale gas development in Ukraine on March 20. It has yet to be approved by parliament, which has been paralyzed by infighting.
Iryna Sekh, head of ecology and natural resources committee in parliament, suggested in her explanatory note that shale gas development might cause ecological problems, spark protests, and result in multiple appeals by Ukrainian civic organizations to international bodies.
Chevron’s Clark said he has not received any invitations to take part in these hearings. “I hope we’re asked to participate,” he said.
Three Batkivshchyna representatives were even more radical in their actions, filing a draft law last month that proposed a full ban on exploration and development of all alternative hydrocarbons in Ukraine. The draft was authored by Arsen Avakov, Mykola Tomenko and Andriy Kozhemyakin and was not approved by the Batkivshchyna faction, its leader Arseniy Yatseniuk told Kyiv Post.
Tomenko said a moratorium was needed because there was a lack of information about Shell’s project in the Yuzivska field, which stretches across the Kharkiv and Donetsk oblasts. Tomenko said their draft law was just a pressure tactic, and Yatseniuk said the draft will be called off.
But it remains in parliament, and has been supplemented by a new draft law on shale gas. Its authors, Tomenko and Avakov call for “obligatory public debate” of draft PSAs between investors and Ukraine, as well as various environmental inspections and other forms of oversight.
Avakov said the document resulted from a week-long discussion with Kharkiv environmentalists on ways to make gas extraction safer without suggesting a full moratorium. “We don’t want to hamper the positive processes,” Avakov said.
Court hearing
There is at least one court hearing pending on issues related to shale gas development. Svoboda’s lawmaker Ihor Shvaika challenged the PSA approval procedure by the Kharkiv Oblast Council – a precondition for signing the agreement with Shell. According to Shvaika, deputies of the local council did not get a chance to study the agreement for which they voted. The first hearing in his case is scheduled for Feb. 27, he told Kyiv Post.
If successful, Shvaika hopes to repeat the process in Donetsk regions, where the same violations allegedly took place. He said in case both courts confirm violations, Svoboda will have grounds to challenge the product sharing agreement signed between Shell and Ukraine’s Nadra Yuzivska. He could not say whether the party will take any further legal action, though.
Kyiv Post editor Katya Gorchinskaya can be reached at [email protected] and staff writer Denis Rafalsky can be reached at [email protected].
