Ukraine will use its natural gas pipeline to start exports of shale gas and methane to the European Union within the next seven to 10 years, Energy and Coal Industry Minister Yuriy Boyko said. His comments, in a weekend interview with Inter television, contrasted with earlier remarks from Prime Minister Mykola Azarov who suggested Ukraine may be forced to dismantle its gas pipelines if Russia keeps building Europe-bound pipelines bypassing Ukraine. "Such a radical scenario is not threatening us because we expect to fill the pipeline with our own gas," Boyko said. Ukraine operates one of the world's largest networks of natural gas pipelines that ship 110 billion cubic meters/year, or up to 80% of Russia's Europe-bound gas supplies. Russia meets 25% of Europe's overall gas demand. Ukraine's position as the key shipper of Russian gas may be challenged later this year when Russia commissions its Nord Stream gas pipeline linking it with Germany across the Baltic Sea. Russia has been also seeking to build South Stream, a gas pipeline linking it with Bulgaria across the Black Sea. Azarov has said this would be a direct threat Ukraine's shipping role. But Boyko argued that with foreign investments in shale gas and methane extraction, Ukraine would be able to increase domestic gas production to a level that would allow it to play a major role in Europe's energy security. Royal Dutch/Shell became earlier this month the first foreign company to be awarded a contract for exploring and producing shale gas in Ukraine. Shell plans to invest up to $800 million in the project. FIVE COMPANIES Boyko said Ukraine would sign similar agreements with five companies within the next three months that will eventually boost domestic gas output to a point that Ukraine will become an exporter of gas. "According to our estimates, and estimates of companies that have either signed or are about to sign the agreements, we will turn into an exporter of gas -- shale gas -- within 7 to 10 years," Boyko said. Ukraine is sitting on about 5 trillion cubic meters of gas, Boyko said citing conservative estimates by western companies and agencies. Kiev is in the middle of an increasingly fractious dispute with Russia over the price it pays for gas, and is seeking both to reduce the price and diversify the sources of supply. To date, Russia has refused to comply. Ukraine currently produces 20 billion cu m/year of gas and is expected to import 40 Bcm of gas from Russia in 2011, according to the energy ministry. But Ukraine has already asked Russian gas giant Gazprom to cut that figure to 27 Bcm in 2012. Ukraine plans to further reduce gas imports to 12 Bcm in 2015, with 7 Bcm/year coming from Russia and 5 Bcm/year from Azerbaijan, Boyko said. Ukraine early next year plans to start building $1.5 billion liquefied natural gas on the Black Sea coast that is aimed at receiving about 5 Bcm/year of LNG from Azerbaijan when it is completed in the middle of 2013, according to the government.

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