Ethiopia and the discovery of gas and oil in Ogaden
13 April 2018

Ethiopia could have more oil and gas than previously thought. Poly-GCL, the Chinese company that has been involved in the exploration and development project in the Ogaden basin since the end of 2013, has found new hydrocarbon deposits.

Nearly the size of Germany, this area of the Horn of Africa has historically been claimed by Somalia but since the end of World War II has been part of Ethiopia and huge resources of oil and gas are hidden in it. At the end of March, the company, headquartered in Hong Kong, identified other reserves in the Calub deposit which was initially thought to be 133 billion cubic meters. However, the quantity could exceed 200 billion cubic meters of gas reserves. Even crude oil could be surprisingly plentiful. According to the Minister of Mining, Oil and Natural Gas of Addis Ababa, Koang Tutlam, Poly-GCL discovered more oil in the new exploration wells around Hilala, 1,200 km Southeast from the Ethiopian capital. “The company is doing an assessment to determine the quantity and data will be revealed upon completion,” they said.

The Calub and Hilala reserves were initially discovered by the American company Tenneco in 1972. In the 1980s, the petroleum company of the USSR Petroleum Exploration Expedition that conducted research in the Ogaden basin estimated the gas reserves in the towns of Calub and Hilala to be more than 110 billion cubic meters. According to what the expert geologists stated to the local newspapers, the Chinese have developed a new petroleum exploration technology that allowed them to find what the Americans could not. “They did not find a new reserve but rather found petroleum that the Americans and Russians in the 60s, 70s and 80s could not see”.

Poly-GCL conducted seismic surveys in 3D and 2D that allowed them to take on “successful” explorations and subcontracted the collection of seismic data in the license area covering 93,000 square kilometers to another Chinese company, BGP Geo Services. Nevertheless, according to experts it is still too soon to predict the amount of the oil reserve and how exploitable it will be. Other than the explorations underway, Poly-GCL is looking to exploit the natural gas reserves in Calub and Hilala. Eight wells have been drilled and prepared for production in Calub.

In the initial plans, the Chinese company aimed to export the gas through a gas pipeline. In January, the Ethiopian Minister of Petroleum and Gas signed an agreement with Poly-GCL to build infrastructure. The Minister stated, “Poly-GCL signed an agreement for the construction of the gas pipeline with the Ethiopian and Djibouti governments, whereas the Ethiopian government is negotiating with the government of Djibouti for the construction of the gas pipeline.” The plant in Djibouti will transform the gas into liquid natural gas and will be exported to China with special LNG vessels. The total cost of the gas development project is estimated at four billion dollars. Dr. Koang said that Poly-GCL will begin exporting gas by 2021. Once operational, the field could generate $1.4 billion a year for Ethiopia and grow to $7 billion over the next few years.

The construction of the refinery in Ethiopia is to be financed by the Americans. Fairfax Africa Fund, an investment company based in the United States, expects a total investment of four billion dollars in collaboration with Asian partners. The company conducted a feasibility study and the investors evaluated several locations, including Djibouti and the city of Awash, 221 km east of Addis Ababa. Awash is in the regional state of Afar in the corridor towards Djibouti, where the national gas depot of Ethiopia is located. The refinery will have the capacity to transform six million tons of crude oil, equal to about 120,000 barrels a day. Ethiopia currently uses three billion tons of fuel each year. The capacity of the refinery will eventually be extended to 12 million tons per year. The refinery will mainly serve Ethiopia, but also part of the East African market.

Ethiopia’s first oil refinery was established in 1967 in the port of Assab. Built by Russian engineers during the imperial regime, it had the capacity to produce 500,000 tons of fuel per year, which then grew to 800,000 tons. After the secession of Eritrea, Ethiopia used the refinery until 1997. From 1997 on, it began to import refined oil products.

Sources: Ice, Bloomberg, The Reporter Ethiopia