The Dutch oil producer announced on its website Monday it will instead be looking to Japanese imports for pipes to use in its new joint-venture effort to produce up to 20 billion cubic meters of shale gas a year at the Yuzivska gas field in the eastern Kharkov and Donetsk regions.
Ukraine, which holds Europe's third-largest shale gas reserves, in January signed a production agreement with Shell to drill 15 wells in a 50-year joint venture with the local company Nadra Yuzivska to develop the Yuzivska field.
The company said that while Ukrainian-made pipes were currently of insufficient quality for the high-pressure drilling needs, the 50-years term of the deal gives Ukraine time to improve its product enough for future use.
The move came a year after an earlier warning Shell issued to the government complaining that Ukraine's low-price piping wasn't sufficient for the task, which was followed by offers to work with the local industry to improve standards.
The oil major, however, issued a surprise statement Monday in which it announced the decision to use imported pipes, the Ukrainian news agency UNIAN reported.
"We have repeatedly stated that they are ready to use Ukrainian goods, provided that the price and quality meet foreign counterparts," the Shell statement said. "At this stage, these pipes are not in Ukraine yet, but we hope that soon they will."
The company added that imports, "particularly from Japan," are superior at this point, but that in the meanwhile its continues to work with Ukrainian producers "to raise their standards to a level that we need.
"When this happens, we will be happy to use Ukrainian pipe. Our contract is for 50 years. During these 50 years, we hope there will be Ukrainian producers who satisfy our needs in this product."
The news comes as a blow to local pipe producers such of Metinvest SCM, owned by Ukrainian oligarch Rinat Akhmetov, and Interpipe, held by billionaire and philanthropist Victor Pinchuk, the Russian energy news website Neftegaz.ru reported.
In April, Oleksiy Tatarenko, Shell's government relations manager, predicted optimistically that Ukraine's pipe makers were on track to being tapped as suppliers.
"One of the benefits of shale gas in Ukraine to our company is the fact that local producers of pipes have been certified by the Shell and are now able to sell to the divisions of our company around the world," he reportedly said.
Shell Ukraine Vice President Graham Tiley also sounded optimistic earlier this year, telling the Kiev newspaper The Day that although there were quality problems, "we are working with the manufacturers of pipe are helping them get through the process of certification. And to be honest, we are fine."
However, as signs emerged Ukrainian pipe makers would not be getting Shell's business, the government moved to temporarily abolish quotas on imported pipes.
The Interdepartmental Commission on International Trade decided in early July that starting this Thursday, it would stop limiting imports of seamless steel casing and tubing for large pipes, regardless of country of origin, the Ukraine news website Korrespondent.net reported.