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Chinese Poly-GCL moves on $4 billion Somali Region export project


Chinese Poly-GCL moves on $4 billion Somali Region export project


ADDIS ABABA – Chinese company Poly-GCL Petroleum Group Holdings is moving ahead with its 4 billion US dollars project to export gas from southeast Ethiopia’s Hilala and Calub gas fields to China after a drilling programme showed promise.

Two appraisal wells drilled last year yielded better-than-expected results, Liang Jin, gas manager at commodities consultancy JYD Information, told Interfax Natural Gas Daily. Poly-GCL said in February that “three sets of oil and gas shows had been detected”.

Project developers laid the foundation stone in early March. Construction should start in August and take three years to complete, a PR representative for the government of neighbouring Djibouti, from where the gas will be exported, told NGD last month. Liang said Poly-GCL will begin work on a pipeline and wharf this year.

Poly-GCL, a joint venture between state-owned China Poly Group and privately owned Hong Kong-based Golden Concord Holdings, intends to seek financing for the project this year.

Liang said the first phase of exploration and development – which will include building a 3 mtpa LNG export plant, pipeline and wharf – will require 2.5 billion US dollars of investment.

The figure is relatively low because Poly-GCL is saving on exploration costs by using research conducted previously by other companies. Nevertheless, Poly-GCL will still be required to embark on a fresh round of fundraising, either through an initial public offering or via secondary markets.

Poly-GCL signed five production-sharing contracts with Ethiopia’s Ministry of Mines in November 2013 for two development blocks and eight exploration blocks spanning 12 million hectares in the country’s Ogaden Basin.

The company completed the appraisal wells in the development blocks, which account for just 1% of the entire acreage, at the end of last year. The blocks have technically recoverable reserves of more than 100 billion cubic metres of gas, or 600 million barrels of oil equivalent – equivalent to a large Chinese gas field, a Shanghai-based source close to the project told NGD.

The project will start test production this year and enter commercial production by the end of 2018 or early 2019. The initial output target is 4 bcm/y, but Poly-GCL plans to increase this to 10-12 bcm/y. The gas will feed an 803 km, 4 bcm/y capacity pipeline from Ethiopia to Djibouti, where the LNG export project will be sited.

Global market in mind

The project is targeted at the global market, not just China, said the source, with Poly-GCL aiming to find customers in Europe, India and Southeast Asia. The company is also considering developing gas-chemical projects in Africa to consume the gas locally, the source added.

Poly-GCL has been seeking Chinese government approval to construct LNG terminals back home. It plans to build one or two in the Yangtze River Delta – most likely in Jiangsu province – and another one or two in the Pearl River Delta.

LNG from Ethiopia would be regasified at Poly-GCL’s terminals and mainly be piped to the company’s gas-fired power stations in China. Some LNG would also be distributed wholesale and to LNG filling stations in inland cities.

Three-year plan

Poly-GCL envisages its terminals having an initial receiving capacity of 3 mtpa each, rising to 10 mtpa in the future to meet any increase in Ethiopian output. Lead times for LNG terminals in China are typically around three years, which would align with the Ethiopian project’s timetable.

The company believes that now is the ideal time to start building infrastructure to position itself for an expected surge in Chinese gas consumption during the 2020s. Beijing is pushing forward oil and gas reforms that, coupled with power market changes, will present opportunities for private players.

Despite low global fuel prices, Poly-GCL believes the cost of Ethiopian LNG will be competitive even against LNG exports from the United States. The company is prepared for a low gas price environment in China if domestic pricing reform is completed before 2020.


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