Ethiopia’s untapped natural resources

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This article was originally published in the 4th issue (October 2016) of The Ethiopian Messenger, the quarterly magazine of the Embassy of Ethiopia in Brussels.

While home to one of the highest deposits of natural gas in Africa, Ethiopia did not take full advantage of this natural resource yet. But the government recently set the strategic goal of increasing the exploitation of this formidable mineral resources potential and turn the sector into a backbone of the country’s industry by 2020-2023

A new beginning for Oil and Natural gas exploitation in Ethiopia

Logo of the Ethiopian Petroleum Supply Enterprise

Ethiopia is home to one of the highest deposits of natural gas in Africa. Some parts of the country’s geological structure resemble the oil and gas fields of the Middle East, particularly in the Ogaden basin. However, despite the commercially viable volumes of gas present in the country’s soil, Ethiopian regimes before 1991 have been unable to put together an arrangement to extract the gas, in part due to the consecutive regimes changes the country experienced. In 1972, natural gas fields were discovered by an American company, Tenneco, which was expelled in 1977 by the Derg. Following this expulsion, a former USSR company, Soviet Petroleum Exploration Expedition (SPEE), started exploring Ethiopia’s gas fields, but the company’s contractual agreement was also terminated in 1994 after the fall of the military regime. As a consequence, most of the country’s potential in oil and gas is still untouched.

This is why, in order to increase its foreign currency earnings, the government of Ethiopia set the strategic goal of increasing the exploitation of its formidable mineral resources potential ten-fold by 2023 and turn the sector into a backbone of the industry by 2020-2023. The strategies to reach this objective include delivering basic geological data to the civil and business sectors, attracting private investors in the development of the mining sector and issuing licenses to those engaged in mineral and petroleum operations. In addition, the development of mineral and geological energy resources of Ethiopia has to take place in an environmentally friendly manner and in collaboration with different stakeholders to regulate the market.

In addition, the Ethiopian government established in 2012 the Ethiopian Petroleum Development Enterprise that will engage in developing the gas fields in partnership with private companies.

Exploration and pipeline constructions

Several firms have already acquired licenses to explore more than 40 blocks throughout Ethiopia in the past four years, the vast majority of them in the south-eastern Somali Region. The country is planning to start producing and exporting natural gas from untapped reserves in the Calub and Hilala fields in its southeast region by next year. Studies reveal the Calub and Hilala fields have deposits of 4.7 trillion cubic feet of gas and 13.6 million barrels of associated liquids, both discovered in the 1970s but not yet exploited. According to Ethiopian Mines Minister Tolossa Shagi, the country expects to make an excess of 1 billion USD in annual foreign exchange earnings from gas exports thanks to these 4.7 trillion cubic feet natural gas reserves.

The company POLY-GCL Petroleum Group Holdings Ltd, a joint venture between the state-owned China POLY Group Corporation and the privately owned Hong Kong-based Golden Concord Group, has finished drilling two appraisal wells and will soon know the actual size of gas deposits in the south-eastern Somali Region. POLY-GCL plans to drill five wells in Ethiopia’s southeast, including three wildcat exploration wells. The project involves developing the fields and building a 700 km pipeline to transport up to 12 million cubic meters of gas from the Ethiopian hinterland to the coast of neighboring Djibouti, where it will build a 3 Metric Tonnes Per Annum (mtpa) liquefied natural gas (LNG) plant and export terminal. Initial construction is expected to take three years to complete. The plant’s capacity could eventually be extended to 10 mtpa. POLY-GCL estimates the cost of this construction at 4 billion USD and initially expected to start LNG production by mid-to-late 2018 at 3 million tons a year at first, rising to 10 million tons later. Another vast natural gas reserve recently found in Arbaminch could transform Ethiopia into a major natural gas producer.

In a recent remark, Prime Minister Hailemariam Desalegn said the nation would be ready to join the global natural gas market after two years. The Premier said that his administration is undertaking projects meant to sell the resource domestically and export it. This is a substantial step for Ethiopia. In fact, since the beginning of the millennium, the country has been building a diversified economy by improving productivity in the agricultural sector and supporting the rise of agro-processing, light manufacturing and infrastructure development. Additional foreign currency earned through natural resources could reveal itself to be an important support in the country’s endeavors to reach the status of middle-income country by 2025.

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