American companies propose to build USD 2 bln gas refinery

Two American energy firms, Greencomm and Innovative Clear Choice Technologies (ICCT), have proposed to the Ethiopian government to build a natural gas refinery plant that can process gas to liquid petroleum at a cost of two billion dollars.

Ethiopia has proven natural gas reserves in the Ogaden basin. Greencomm and ICCT have proposed to the state-owned Ethiopian Minerals, Petroleum and Bio-Fuel Development Corporation to establish a public private partnership that would build a Gas-To-Liquid (GTL) plant in the Ogaden basin.

Andargie Bekele, petroleum exploration and development director with the Ethiopian Minerals, Petroleum and Bio Fuel Development Corporation, told The Reporter that Greencomm and ICCT have expressed their keen interest in constructing a GTL plant that converts natural gas into synthetic crude oil. Andargie said the proposed GTL technology would produce synthetic crude oil out of which benzene, diesel, jet fuel, kerosene, LPG, and lubricants can be produced.

GTL is not a new technology. It was first innovated by two German scientists in 1926. The Germans used CTL technology (coal to liquid) to produce liquid petroleum from coal during the Second World War. South Africa used the same technology to produce petroleum from coal during the apartheid regime. Until recently GTL technology was expensive as the technology patent right was held by few companies. Many companies now offer different GTL technologies and with the declining price of natural gas the GTL technology is becoming affordable. The US coal fracking technology has also contributed to the reduction in GTL technology cost.    

Greencomm and ICCT now proposed to change Ethiopian natural gas in to synthetic crude oil using a GTL technology. The companies plan to build the GTL plant in the Ogaden basin with an outlay of two billion dollars. The companies mull using Axen and Technip, French companies, GTL technology. According to the proposal, Merrill Lynch and Westmore land Equity Fund LLC would finance the project.   

Greencomm and ICCT have signed a Memorandum of Understanding (MoU) with the Ethiopian Minerals, Petroleum and Bio Fuel Development Corporation to realize the project. Following the proposal made by the companies, experts of the Ethiopian Minerals, Petroleum and Bio Fuel Development Corporation have traveled to Paris, France on a familiarization tour to visit Axen IFP Group.

“We have done three things. We checked the profile of the companies, reviewed the feasibility study and studied the GTL technology,” Andargie told The Reporter. “We reviewed the finance, technical and legal matters which we found it to be viable.”

According to Andargie, Greencomm and ICCT would secure the financing and provide the technology. The Ethiopian government is expected to provide land for the construction of the gas processing plant and investment guarantee. The Ethiopian government through the Ethiopian Minerals, Petroleum and Bio Fuel Development Corporation will have a 15 percent free equity in the project. A new share company would be established in Ethiopia in which Greencomm and ICCT would have a majority share of 85 percent while Ethiopian government will own a minority 15 percent stake.

Oil companies engaged in the oil and gas exploration and development projects in the Ogaden basin are expected to supply natural gas to the proposed GTL plant. The natural gas reserve at Calub and Hilala localities is estimated at four trillion cubic feet (TCF). At Genale 0.6 TCF of gas was discovered by Petronas, the Malaysian oil and gas giant, while 1.4 TCF of gas was discovered in Elkuran locality by New Age, a British oil firm. 

The Calub, Hilala and Genale gas fields are found under the concession of a Chinese company, Poly GCL, while the Elkuran concession belongs to New Age. Poly GCL is currently working to develop the Calub and Hilala gas fields. The company has announced its plan to construct a gas pipeline all the way to Djibouti port and build an LNG (Liquid Natural Gas) plant at a cost of four billion dollars.

When signing a production sharing agreement with the then Ministry of Mines in November 2013, Poly GCL had revealed its plan to start exporting gas mainly to China by 2017. However, the gas pipeline construction has not yet commenced to date.     

A senior official at the Ministry of Mines, Petroleum and Natural Gas told The Reporter that to realise the new GTL plant construction plan the ministry should negotiate with Poly GCL and New Age and convince them to supply gas to the planned GTL plant. “This could be a daunting task given Poly GCL’s ambitious plan of exporting the gas to China,” the official said.        

Andargie said that if the proposed GTL plant can secure 1.4 TCF of gas it can process 35,000 barrels of petroleum products per day for 15-17 years. Ethiopia’s daily fuel consumption is 70,000 barrels. “It is all about energy security. We are fully dependent on imported fuel which is draining the country’s hard earned foreign currency. It is high time for us to focus on producing fuel locally and save the huge sum of foreign currency,” he said.  

After reviewing the business plan proposed by Greencomm and ICCT, experts of the Ethiopian Minerals, Petroleum and Bio Fuel Development Corporation submitted a report to the board of directors of the corporation which was chaired by Kassa Tekleberhan, former minister of Federal Affairs. The board remanded the matter to a ministerial committee comprising the Ministry of Mines, Petroleum and Natural Gas, Ministry of Finance and Economic Cooperation, Ministry of Public Enterprises, Ministry of Water, Irrigation and Electric, Ministry of Industry, National Bank of Ethiopia and National Plan Commission. Up on the recommendation of the ministerial committee the board of directors instructed the corporation to form a team of experts and conduct further study on the project proposal.  

Accordingly, a committee was established by directors drawn from the corporation, the Ministry of Mines, Petroleum and Natura Gas, the National Bank of Ethiopia, the Ministry of Finance and Economic Cooperation, Ministry of Industry, Ministry of Public Enterprises, and Ministry of Water, Irrigation and Electric. The technical committee reviewed the project proposal presented by Greencomm and ICCT and submitted a report to the CEO of the Ethiopian Minerals, Petroleum and Bio Fuel Development Corporation, Mulugeta Seid, the new board chairman of the corporation Kuang Tutelam (PhD), state minister of Ministry of Mines, Petroleum and natural Gas and the Ministerial Committee.

Andargie said the technical committee submitted the report to the board chairman, Kuang Lutelam, two weeks ago. The board will deliberate on the report and present it to the ministerial committee which would give an instruction that would guide the corporation in dealing with the project.       

A seasoned petroleum geologist The Reporter talked to said that the new plan to build a GTL plant in Ethiopia seems a viable plan if the gas producers concede to the proposed project. “Considering the foreign currency crunch that is fumbling the Ethiopian economy it would be wise for the government to utilise the natural gas locally instead of exporting it.”
The petroleum expert said to build an LNG plant there should be atleast 8-9 TCF of natural gas reserve while the country has only an estimated gas reserve of 6.1 TCF. “But the proposed GTL plant requires only 1.2 TCF of gas reserve. Poly-GCL has four TCF at Calub and Hilala and this does not economically justify the construction of a four billion gas pipeline and LNG plant. Unless they discover new gas reserve they cannot be profitable with the existing four TCF,” the expert said. “Besides the LNG plant would be built in Djibouti while the GTL plant is planned to be built in Ethiopia,” he added.    

Ethiopia annually imports more than three million metric tons of petroleum valued at 2.8 billion dollars consuming 80 percent of the country’s foreign currency earnings.