Oil & gas sector in Ethiopia
Ethiopia has a very huge hydrocarbon potential and is much underexplored. The Ogaden Basin alone is 350,000km2 and there have only been 46 wells drilled so far. With annual oil import at USD 2.5 billion (in 2012) and growing, home consumption is also a significant complement to foreign demand.
Upstream: The sedimentary regions of Ethiopia cover a significant portion of the country and comprise five distinct sedimentary basins – Ogaden, Gambella, the Southern Rift Basin, Abay and Mekele – which are believed to be promising for oil discovery.
The sedimentary rock in the Ogaden Basin is 10,000m deep and has a similar nature and age with the sedimentary rocks of the oil productive basins in the Middle East. It is located in the South Eastern part of Ethiopia and occupies an area of about 350,000km2.
Two major discoveries in the Ogaden basin include the finding of oil in El Kuran in 1972 and the confirmation of the size of natural gas reserve of 2.7Tcf in Calub and 1.3 Tcf in Hilala gas condensate fields. New AGE Ethiopia is also planning to drill an appraisal well in June this year on the El Kuran locality to establish the commercial viability of the accumulation.
South West Energy is the other company which is looking to drill three wells in 2013 and 2014 in its Ogaden Basin blocks on Ethiopia’s border with Somalia in the east of the country.
The Abay Basin covers an area of approximately 63,000km2 in the central north western plateau of Ethiopia. A geochemical analysis of an oil seep from Wereilu locality in the north-eastern margin of the basin suggests the presence of mature oil source rock of marine origin; possibly marine shale that has generated oil. Falcon Petroleum Ltd is currently undertaking seismic survey in the Wereilu locality of the Basin.
The Gambella Basin, located in the south-western Ethiopia, near the Sudan border, covers an area of about 17,500km2. The potential of the Basin for hydrocarbons needs to be viewed in relation with the South Central Sudanese basins, which are renowned for oil pool discoveries. The Gambella area is the south-eastern extension of the Melut Basin where two oil discoveries (Adar and Yale) are present.
The Mekele Basin, with an area of 8,000km2, is located in the northern part of the country. Detailed studies from the perspective of petroleum exploration are yet to be made in this particular sedimentary basin. Some studies suggest that the area has some interesting geological make up to look for petroleum.
The Southern Rift Basins are represented mainly by South Omo and Chew-Bahir Basins that lie within the Broadly rifted zone of Southern Ethiopia. Tullow Oil has drilled the Sabisa – 1 well in South Omo and though it didn’t note oil inflow, it has encountered a working petroleum system (reservoir rock and source rock). This block is considered an extension of Tullow’s Kenya concession and it all is part of East Africa’s Tertiary Rift (which includes Uganda).
Downstream: Annual oil and gas imports stands at USD 2.5 billion in 2012 and the size of the domestic market for lubricants is estimated at 48m litters per annum.
Potential business opportunities:
•Prospecting for oil and gas: there are 11 blocks currently open to private investors interested in oil and gas exploration. The list includes the following:
Ogaden Basin – 4 blocks
Nile Basin – 7 blocks (including the Metema 1 block)
•Consultancy in environmental and social impact assessment of oil and gas exploration and development activities and feasibility study on the commercial viability of oil and gas development projects.
•Seismic survey and exploratory drilling of prospective sites.
Lubricant import and distribution as well as fuel distribution businesses are open to foreign investors.
Getting into the market
It is only after assessing the minimum exploration work, economic benefits to the country in terms of oil profit sharing, and the company´s proposal that the Ministry of Mines (MoM) will accept a company’s application for exploration.
A successful applicant will conclude a joint study agreement to study the specific block that the applicant applies for. This study usually takes a year and a half to complete. The study involves analysing the geology of the area by taking satellite images, and studying the local vegetation and geology to decide if the area has a potential for petroleum or not.
It is when the company believes that it is profitable to engage in exploration and indicates the specific area for exploration, that the MoM will conclude a Production Sharing Agreement (PSA).
If more than one company are bidding for the same area to get oil and gas exploration concession, concessions are awarded to those that have come up with the best financial and technical proposals. MoM employs direct negotiation when there is only a single applicant for any particular block.
Downstream: investors who wish to engage in lubricants import and distribution as well as fuel distribution business are required to have an investment permit and a business license from Ethiopian Investment Agency (EIA).
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