Oil gushes forth
- Poly GCL runs crude oil production test - Discovers new gas field
After 70 years of relentless quest for oil in the Ogaden basin Ethiopia for the first time began producing a light crude oil from Hilala gas field on a trial basis.
Senior government officials including the Minister of Mines, Petroleum and Natural Gas, Meles Alemu, State Minister, Kaong Tutlam (PhD), the Minister of Government Communications Affairs Office, Ahmed Shide, President of the Ethiopian Somali Regional State, Abdi Mohamud Omar and senior executives of Poly GCL Petroleum Investments attended the launch of the crude oil test production.
Poly GCL Petroleum Investment has been trying to develop the natural gas reserves in the Calub, Hilala and Genale gas fields. It has also been prospecting for additional gas and oil reserves in its license area measuring 93,000sqkm of land in the arid region of the Ogaden basin since 2014. Poly GCL Petroleum Investments – led by general manager Li Wei – struck oil in the wells it drilled at Hilala. Following the oil discovery petroleum experts of Poly GCL started the test production in the presence of officials of the federal and regional government.
“It is a milestone in the 70-year history of oil exploration in Ethiopia,” Koang told The Reporter. “There was some gas discovery which has not been materialized. But when it comes to oil we used to have only a bottle of crude oil. Now barrels of oil is flowing. This is a milestone and I am very happy to be part of it,” he said.
Poly GCL drilled three exploration wells in Hilala at the Hamanlei formation. “We found traces of oil in well six, seven and eight. This production testing is to check what amount or reserve the wells have. The company will continue the testing until it is sure that the reserve is sufficient for commercial production,” Koang said. All the three wells have gas shows and two of them have demonstrated oil flow. The fourth well is being drilled.
According to Koang, during the test production Poly GCL will daily produce 450 barrels of oil. Poly GCL will supply the crude oil to local factories which use furnace oil. The company has already signed an agreement with a Chinese glass factory, Ethiopia Hanson International Glass PLC, to supply the light oil to the factory. Poly GCL will also supply the light oil to some of the local cement factories.
Ploy-GCL has approached the Ethiopian Petroleum Supply Enterprise (EPSE) and proposed to build a small mobile oil refinery and refine the oil in the Ogaden and supply petroleum products including gasoline, diesel and jet fuel. Tadese Hailemariam, CEO of EPSE, told The Reporter that the enterprise will be happy to take delivery of petroleum products from Poly GCL if the products meet the quality specifications. “For the time being the production amount is small – only 400 barrels of oil per day – and it is only test production. Our daily consumption is now 80,000 barrels. But as there is ongoing exploration work more oil could be discovered. We spend three billion dollars on fuel purchase yearly. And if we can cover even only ten percent our demand from local production it means a lot to us,” Tadesse said.
According to Tadesse, as the local factories have switched from using furnace oil to coal the consumption of furnace oil has dwindled in recent years. Energy intensive cement factories used to consume furnace oil in bulk to burn limestone. Most of them now use coal imported from South Africa.
Tadesse said that local factories now use 125,000 liters of heavy oil and 110,000 liters of light oil daily. “We could save USD 1.2 million monthly if we replace with the local oil,” he said.
Koang told The Reporter that when the Poly GCL confirms the viability of the crude oil it will develop a development plan to be approved by the Ministry of Mines, Petroleum and Natural Gas. The production test could take one to three years. “If they find it to be satisfactory they could even start the commercial production early,” Koang said.
“We cannot tell when the commercial production will start. At this moment we are not even sure how much is the reserve. Whether it will be commercially profitable or not it will depend on the amount. We have to be sure of the amount and then after we see all these parameters we go for development. Development also needs time because you will need to build the required infrastructure. For now it is enough to say production testing has started when we get the results of the testing we will go for development.”
When Poly GCL signed the petroleum development agreement in 2013 with the then Ministry of Mines it agreed to pay USD 100 million to the Ethiopian government for the Calub and Hilala gas fields. Based on the production sharing agreement the Ethiopian government will have a 15 percent share while Poly GCL will have a majority 85 percent. In addition to its share on the product, the government is entitled to income tax, royalty and land rent fees.
The Ethiopian government and Poly GCL have agreed to share the revenue generated from the disposal of crude oil after Hilala crude oil production testing project. The Ministry of Mines, Petroleum and Natural Gas has assigned the state oil company – Ethiopian Minerals, Petroleum and Bio Fuel Corporation (EMPBC) – as the collaboration partner in production and handling the government’s shares as per the production sharing agreement. Poly GCL and EMPBC have drafted a collaboration agreement that would enable them share the revenue. The agreement has not been signed yet.
In a related development, Poly GCL has discovered a new gas field in the Ogaden basin in a locality called Dohar. The company has drilled two wells in which it discovered gas reserve. According to a senior petroleum expert at the Ministry of Mines, Petroleum and Natural Gas the new gas reserve at Dohar gas field is estimated at three trillion cubic feet (TCF). Dohar is found between Calub and Hilala gas fields, 1,200 km south east of Ethiopia.
Koang told The Reporter that the two wells at Dohar are under testing adding that Poly GCL is drilling the third well. “It will take some time to determine the exact amount of the newly discovered gas in Dohar,” he said.
Poly GCL has prepared and summited a gas development plan that will enable it to develop the existing gas reserves in Calub, Hilala, Genale and Dohar gas fields to the company will construct a gas pipeline all the way to Djibouti where it will build a gas treatment plant. The gas treatment plant will convert the gas into LNG (Liquefied Natural Gas) and Poly GCL plans to export the LNG to China with especial LNG vessels.
The total gas development project is estimated to cost four billion dollars. Koang told The Reporter that Poly GCL will commence the pipe construction in September this year adding that the gas export will begin in 2021.
In his public address on Wednesday Prime Minister Abiy Ahmed (PhD) stated that the gas export will generate annual revenue of one billion dollars. Abiy said that the gas export will create job opportunities and generate the much needed foreign currency.
Contributed by Kaleyesus Bekele and Dawit Endeshaw