The Relentless Efforts to Develop Gas Fields

By Kaleyesus Bekele
On November 16, 2013, the Ethiopian Ministry of Mines and a Chinese company concluded a confidential petroleum exploration and development agreement in Addis Ababa.

The Chinese company, POLY GCL Petroleum Investment Limited, signed Production Sharing Agreement (PSA) that enables it to develop the Calub and Hilala gas fields found in the Ogaden basin in Eastern Ethiopia. The agreement also allows Poly GCL to prospect for oil and gas in Blocks 3&4, 11&15, 12&16, 17&20 in the Ogaden basin of Ethiopia.

No media outlet was invited to the signing ceremony nor was there any press conference organized by either the ministry or Poly GCL. After a long silence, the company now says it is advancing on the gas development project. It expressed its firm commitment to make Ethiopia an oil and gas producing country for the first time in its history. The company said it is in the process of embarking on an oil and gas exploration project.

The Calub gas field was first discovered by an American oil firm, Tenneco, in 1972. Tenneco had discovered a non commercial crude oil reserve at Hilala locality. The company was expelled by the former military regime following the 1974 socialist revolution. The former Union of Soviet Socialist Republics (USSR) oil firm, Soviet Petroleum Exploration Expedition (SPEE), which was prospecting for oil and gas in the Ogaden basin in the 1980s, confirmed the gas reserve. SPEE also discovered the Hilala gas field.

SPEE pulled out of Ethiopia after its contractual agreement with the Ethiopian government was terminated in 1993. And, of course, the end of the Cold War, the downfall of the socialist camp and the change in government in Ethiopia contributed to the withdrawal of SPEE from Ethiopia.

Since then, the Ethiopian government negotiated with a dozen of companies to privatize the gas development project. A Memorandum of Understanding was signed with an American company SECOR, Methanol Joint Stock (Russian), Stroy TransGaz (Russian) but none of them bore fruit.

At one point the Ethiopian government tried to extract the gas reserve by itself after it secured a 75 million dollar loan from the World Bank. The government established Calub Gas SC and sold a minority five percent share to the private sector. The attempt, however, failed after the bank changed its mind and froze the fund saying that the government should privatize the project.

In 2003 PSA was signed with a Jordanian company, SI Tech International (SIL), which failed to execute the project and later the Ministry of Mines revoked the petroleum development license in 2006. Through an open international tender the Malaysian oil and gas giant, Petronas, acquired the Calub and Hilala gas fields and eight exploration blocks in 2007. Due to a management decision Petronas relinquished all its concessions in Ethiopia and left the country in 2010.

In another tender, a Hong Kong-based company, PetroTrans, acquired the concessions in July 2011. However, just after a year the Ministry of Mines revoked the petroleum development agreement saying that the company was not doing the work according to schedule, an accusation the company utterly denies. PetroTrans took the case to an international arbitration court based in Geneva, International Chambers of Commerce (ICC) and the case is now under litigation.

According to industry experts, probably Ethiopia is the only country in the world that kept proven gas reserves idle for over forty years. The Calub and Hilala gas reserves are estimated at 116 billion cu.m. (4 trillion cu. feet). There is also another gas discovery made by Petronas in Genale locality in the Ogaden basin. The Genale gas reserve is estimated at 0.6 billion cu.m. This also now belongs to Poly GCL.
It is now Poly GCL's turn to try to realize the project. "Will it work out this time?" industry analysts inquire skeptically. After repeated attempts, executives of Poly GCL gave a written response to questions raised by The Reporter about the planned gas development project.

Who are owners of Poly GCL?

The shareholders of Poly-GCL Petroleum Investments Limited are Poly Technologies Inc. and Golden Concord Holdings Limited.

Poly Technologies Inc. ("Poly Technologies") is a subsidiary of China Poly Group. Poly GCL claims that China Poly is one of the most influential state-owned enterprises in China. China Poly Group mainly engaged in natural resources investment and development, real estate development, culture and art business, and international trade.

Poly GCL said, in Ethiopia Poly has been closely working with government organizations and state enterprises by supplying oil and cargo ships, manufacturing lines and factories, communication and internet equipment, FM/TV transmitting stations, rural home solar systems, etc since the 1980s. "Poly is now widely participating in the Ethiopian five-year development road map, Growth and Transformation Plan."

Golden Concord Holdings Limited (GCL Group) is a Hong Kong-based specialized energy corporate group focusing on clean energy and new energy. The company claims that it is also the biggest non-state-owned green electricity holding company in China and one of the biggest manufacturers of photovoltaic materials in the world. The main business of the group includes electricity, photovoltaic materials, new energy, natural gas and green real estate. It holds three listed companies, including GCL-POLY Energy Holdings Limited. GCL Oil and Gas is an affiliated enterprise of GCL Group serving under the GCL mentality of "Bring Green Power to Life."

"Relying on GCL Group's resource advantages in electricity, photovoltaic, energy storage and power battery and cooperating with large petroleum and petrochemical companies both in China and abroad, GCL Oil and Gas is actively participating in and expanding petroleum, coalbed methane, shale gas, tight gas and shale of oil business." It is actively participating in the construction of large-scale LNG receiving stations and petroleum storage tanks, and is investing in oil and gas pipelines. It also invests in the construction of oil and gas stations and charging stations and operates local gas companies. It strives to create a complete industrial chain ranging from oil and gas resource, pipeline, city gas, gas-fired electricity, petrochemical to oil, gas and charging stations. "It realizes the importance of a synchronous development of both upstream and downstream business," the company said.

According to Poly GCL, Poly Technologies and GCL Group are long-term partners. They jointly established POLY-GCL Petroleum Investments Limited (POLY-GCL) to invest in the oil and gas development project in Ogaden Basin Ethiopia.
General Manager of Poly GCL, Mr. Li Wei, said "POLY-GCL commits itself to becoming one premier oil and gascompany in Ethiopia with strong competitiveness and contributing towards achieving Ethiopia's national aspiration as an oil and gas exporter in the world. It will engage in a wide range of activities related to oil and natural gas, including: exploration, development, production and marketing crude oil and natural gas, transportation of natural gas, crude oil and refined oil and marketing of natural gas."

Wei says under the guidance of the concept of scientific development, Poly GCLis dedicated to implementing its vision and mission, to fulfill the contractual requirements, to develop competent Ethiopian workforce and maintaining high health, safety and environment friendly standards.
The development plan
Poly GCL said after signing the PSA with the Ministry of Mines it has been undertaking various activities.

According to Wei, since signing the PSA, Poly GCL organized a competent project team and set up a management system in accordance with international petroleum industry practices. "We have submitted the 2014 work program and budget, finished the comprehensive geology and geophysical study, signed the contract with a company to begin the Environment Impact Assessment (EIA) study," Wei said.
According to him, Poly GCL is in the process of hiring a company that would undertake a seismic survey and drill exploration wells. "We are preparing bidding documents for seismic and drilling work tender," Wei said.

According to the current plan, the first stage of the project will produce around 3 million tons of LNGs (Liquefied Natural Gas) annually and is expected to go into production in 2018. According to the exploration and development plan, 4 billion cubic meters of natural gas will be produced each year from Calub and Hilala block and the option is to transport the gas northward through a pipeline of 800 km long to Djibouti port and finally market the products in the international markets.
As to the figure of total investments, the company said it could only be estimated after certain exploration works and the completion of the Master Development Plan.
"Empirically, we have started both the exploration and construction work, for instances, the site survey, the bidding process for different packages, the Pre-FEED studies, the renovation and construction of the camp site, etc."

The company said it is planning to start the seismic acquisition of exploration in 2015 and the construction and the installation for surface engineering in 2016.
Some petroleum experts say Poly GCL does not have the required finance, expertise, and experience to execute the gas development project. Executives of Poly GCL deny the accusations and defend their position.

"We proudly reiterate that we are financially sound and are maintaining sufficient expertise and experience to operate the project and are striving for further excellence,"Wei said.

Informed sources told The Reporter that the company is not doing the work according to schedule. These sources said that the company has not accomplished any tangible work so far.

Executives of Poly GLC reject the claim. "We have been doing work in a systematic manner, as the petroleum industry practice requires. In 2014, we have been mainly doing preparation work which outsiders may not be aware of. Anyway, we have been progressing well so far and in accordance with agreement with the Ethiopia government," Wei said.
There is also a rumor that claims that Poly GCL is trying to farm out the concession to another foreign company. However, executives of Poly GCL said this is "utterly false".

Executives of Poly GCL are negotiating with the Djiboutian government on gas pipeline construction. A petroleum expert wonders how the company officials could talk about the pipeline construction before confirming the amount of gas reserves.
Executives of Poly GLC said that they approached Djiboutian authorities for future outlet options. "About the amount of gas reserves, we have been conducting the options research under different scenarios. That is the usual practice in petroleum industry," Wei said.

Sources told The Reporter that officials of the Ministry of Mines are pushing the company to embark on the gas development and oil and gas exploration projects as soon as possible.
Ketsela Tadesse (PhD), director of the petroleum licensing and administration with the Ministry of Mines, told The Reporter that the ministry awarded the project to Poly GCL after it made a thorough assessment of the company's capability. "We believe that we awarded the project to the right company," Ketsela said. He said Poly GCL was undertaking the required preparation work to start the project at full swing.

Some observers are still skeptical about the realization of the project as many previous attempts had remained futile. Only time will tell if Poly GCL will make Ethiopia a petroleum exporter country for the first time in its long history.

Source: AllAfrica