Chinese Firm Eyes Gas Export from Calub through Berbera

Petronas’ exit from its explorations bid in the Ogaden and Gambella areas, after spending 350 million Br, remains disputable whether it was prompted due to security concerns, or its management decisions. Nonetheless, the Ministry of Mines (MoM) had issued an international tender in March 2011, inviting prospective developers with a bid to win concessions over Ethiopia’s oldest identified natural gas reserves.

Bearing closer resemblance, a Chinese company, PetroTrans Company Ltd, was awarded the concession last week, beating six other bidders, including South West Energy (SWE), which has blocks in the south eastern part of Ethiopia at the exploitation stage; the National Oil Company (NOC) of Ethiopia, largely owned by Mohammed Ali Al-Amoudi (Sheikh); and Cobramar of Seychelles.

“Out of the three companies [which submitted their bids], PetroTrans has made the best proposal,” read a statement issued by the ministry on Friday, July 22, 2011, after the signing of the concession for 25 years.

Sinkinesh Ejigu, minister of MoM, signed the exploration and production sharing agreement at the Sheraton with John Chine, chairman and president of PetroTrans.

PetroTrans, established in 1997, is involved in an upstream oil and gas industry, and leases oil and gas development projects. The company has experiences with oil and gas development in China, Indonesia, Kazakhstan and Yemen, with portfolios including the 53 billion dollars China-Saudi Arabia gas development agreements, signed in 2003, and the 4.28 billion dollars Petrokazkhstan acquisition venture, in 2005.

The agreement signed at the Sheraton last week adds four blocks, stretching 96,000 square kilometres (sqkm), to the company’s global portfolios.

The concessions transferred to PetroTrans are exploration blocks 3 and 4, 11 and 15, 12 and 16, and 17 and 20, which were under Petronas, a Malaysian oil giant eyeing to invest 1.9 billion dollars.

PetroTrans has agreed to invest close to four billion dollars in order to develop the gas fields of Calub and Hilal, and explore petroleum in the area. The company has agreed to pay a total of 130 million dollars in 10 years for predevelopment costs incurred in the gas fields, which have an initial reserve of gas estimated to reach 76 million cubic metres.

The government has projected this to increase by 100pc by the end of 2014/15, from its 20pc potential now, intending a 20pc annual increase, according to the Growth and Transformation Plan (GTP).

The amount the Chinese company has agreed to pay for the predevelopment is considered the highest amount that has been paid for a concession of blocks, sources at the ministry disclosed. Petronas has paid 80 million Br for the predevelopment of the area.

Before being forced to leave only after drilling a well at Genale and Hilala, Petronas was to invest in building a gas treatment plant and constructing a gas pipeline to the port of Djibouti.

The Chinese company is also to develop the field in three years, building gas transport infrastructure and processing facilities. The pipelines are planned to cross the Ogaden Desert and reach Berbera Port in Somaliland, for exports via ships.

“We believe that there is huge potential that goes beyond satisfying the domestic demand,” said Chine after the signing of the agreement. “The speed at which Chinese companies work is indisputable and shown by the 8,200km pipeline is constructed in just two years. Our company will also accomplish this in a few years.”

As the major work which demands huge investment has already been done by different oil companies which did not make it to the production stage, PetroTrans is in a privileged position to do the rest, an expert well informed on the project and with vast experience in the industry, told Fortune.

“It is only expected to establish a plant with all the machinery necessary for production,” he said.

A number of international companies have carried petroleum exploration and well completion works after the gas fields were first discovered in 1973, by Tenneco, an American company. Subsequent to the change of the Imperial regime in the mid-1970s, and after the end of war between Ethiopia and Somalia, the concession was granted to Soviet Petroleum Exploration Expeditions (SPEE), which had confirmed the gas reserves during the Derge regime.

Following the collapse of the military government, Calub Gas SC, a local company in which the majority of the shares were owned by the government, was established in 1995, with an initial capital of 102 million Br. Managed by the able Jihad Abaqoyas, the company was established to conduct explorations and exploitations of natural extraction in the energy sector; it was dissolved in 2005.

The concessions in Ogaden were granted to a Jordanian company, SITech International, which had made no meaningful progress on the project when its executive disappeared in 2006, despite their promise to invest 1.7 billion dollars.

The federal government commissioned the Chinese Zhoungyan Petroleum Exploration Bureau (ZPEB); it was this company that has made the eight wells in the two sites ready for exploitations.

Ethiopia has come a long way since the 1970s in its dream of producing energy from the Ogaden, with little success to date.

“Today’s agreement will ensure the implementation Ethiopia