Patrick van Daele, General Manager, Shell Ukraine Exploration and Production

Following Boris Nemtsov’s very interesting speech I will not talk about things that Boris already mentioned. I will not be talking about regional pipeline issues; I will not be talking about Russia or Gasprom. I am an investor here in Ukraine. So, I want to say a few things about Ukraine. I want to paint a little bit of a global energy challenge picture first, and then I will focus later on things where we see the opportunities in Ukraine. And the challenges for the world in Shell we like to summarize them in what we call three hard truths.

That is first of all that with more people and with growing prosperity the demand for energy is surging. The second one is that energy supplies from all sources, the conventional and the unconventional ones, will struggle to keep pace. So, the demand is surging and supply is struggling to keep up. And thirdly, of course, as we have heard already this morning, the environmental stresses from producing and using energy keep increasing as well. And these are the tough challenges that the industry is facing today because, after all, our core role is to keep producing affordable energy at a lower cost at the moment. We believe, that the countries will continue to depend on conventional sources of energy, oil and gas for a long time to come to meet these rising living standards.

So, what is still out there? The conventional oil and gas resources – those are really the more difficult hydrocarbons that we now need to go after, producing more difficult barrels, and that will depend on deploying new technologies, building superior capabilities and also sharing best practices. We believe that no country and also not one company can tackle these challenges of the future alone. And that’s why we advocate very strongly that we need to share our knowledge, we need to work together, and we need to bring one another on a common understanding of the energy system. We work very closely with policy makers in reaching that understanding. I don’t know whether you know but the way we like to prepare ourselves for the sound future by working with scenarios. And if any of you is interested in getting access to the Shell scenarios for the future, they are readily available on the websites. We have painted in the scenarios that we prepared this year; we have painted two possible scenarios for the world. One we call the Scramble Scenario, and the second one we call the Blue Print Scenario. As words already suggest Scramble – it means that this is the scenario where countries are focusing mainly on their own short-term energy security and they are putting off actions on energy efficiency and CO-2. In the Blue Print scenario, on the other hand, that is a model of more cooperative, collaborative effort, where international agreements on market measures are included that promote efficiency and reducing emissions. And these scenarios we are discussing with the governments in the countries where we operate. I think that is fair to say that the state governments so far have failed to agree on some of these common positions. And it’s little bit of a scramble at the moment. The governments are working on quite of a mixed bowl of bilateral deals and fragmented relations and policies.

And we advocate more coordination. Coordination, cooperation – this is really the scenario that we would like to come through in Shell, this Blue Print Scenario is really the one that is our favorite scenario. On cooperation, I think that brings me very nicely to the message that I have for Shell in Ukraine, I think in Ukraine too – opportunities are there, but like in many other countries those “low-hanging fruits” are found and developed. And we think that what is left there is going to require technology, it is going to require large investments and it’s going to require global expertise to develop – we call them what we call the difficult resources. Enlarging complex projects in cooperation is the lead preferred model that Shell is using. And in Ukraine we are putting that into practice; we have cooperation here with the state oil and gas company with one of the affiliates of Naftogas that we work with in partnership already.

My first question today, that is one that I’m struggling with at the moment, this partnership that we have with the state gas company, it is moving forward, it is delivering results, my question is: why these partnerships not more actively encouraged by Ukrainian government? At the moment there is only one sizable cooperation between an international oil major and Ukrainian state company. We all know that the state companies are struggling for investment, are struggling for technology, wanting to bring global best practice to their companies. Why do I not see more encouragement of such partnerships from the government? As to my second question, I think that it will come as no surprise to the people and to the audience that the energy sector in Ukraine is really suffering from underinvestment and I think in order to bring that investment it is very important that the rules of participation for companies are very clear and transparent, and that they encourage competition rather than discourage competition. I take as an example to domestic gas market it is overregulated. The state company Naftogas can charge a premium for its gas over the other players in the market. And we believe that by progressively deregulating the market we will actually encourage that competition. So, my second question that I’m struggling with is when we’ll see the first concrete tangible steps towards these deregulated markets in Ukraine? Thank you.

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