Gas link: New liquefied natural gas (LNG) project fosters regional and international trade relationships

The economic and commercial relationship between Djibouti and Ethiopia is becoming increasingly interlinked, with the two countries recently signing a deal that will allow for the export of Ethiopia’s gas resources through its neighbour maritime trade routes. Although Djibouti already handles the majority of imports to Ethiopia, the planned LNG project will further strengthen the Djiboutian-Ethiopian commercial relationship, and continue underlining the country’s importance for East African energy and transport markets.

LNG PROJECT: With a budget of $4bn, Djibouti and its partners have undertaken the LNG project as part of an ongoing drive to develop the country’s infrastructure. The project includes the construction of a 803-km pipeline that will connect the gas extraction areas in Ethiopia’s Ogaden Basin to the coast of Djibouti, as well as a gas liquefaction plant and export terminal.

In late 2013 POLY-GCL, an energy consortium made up of China Poly Group and Hong Kong-based Golden Concord, signed five production-sharing agreements with the Ethiopian government to exploit the country’s gas reserves. In late 2017 the consortium agreed to build a gas pipeline linking Ethiopia and Djibouti, though which it plans to transport its gas with an estimated 4.5trn cu feet of reserves. Production exported through the new pipeline will be shipped to the Chinese market.

The plant is expected to be operational in 2020 and have the capacity to export 3m tonnes of natural gas per year; however, that is projected to expand to 10m tonnes after the third phase is complete. The export terminal will be able to handle ships with a transport capacity of up to 267,000 cu metres.

The new LNG project is part of a larger infrastructure development programme, whose recently completed projects include the $64m port of Goubet, which will focus on salt exports; the $580m Doraleh Multipurpose Port; and the $91m port of Tadjourah (see Transport & Logistics chapter). Given the country’s status as an access point for some 400m landlocked consumers in the region, port infrastructure, for both energy and other types of merchandise, will remain strategic for Djibouti’s long-term economic positioning.

REGIONAL CONTEXT: For Ethiopia, the upcoming LNG project is an attractive opportunity to raise export revenues and become an important foreign currency earner. Motuma Mekassa, Ethiopia’s then-minister of mining, petroleum and natural gas, told local media in April 2018 that LNG exports would bring an estimated $1bn over the first year of the project’s operation.

The new LNG infrastructure will also help to further strengthen Djibouti’s position in key energy commerce routes between Asia, Europe, Africa and the Middle East. Global demand for gas is expected to rise by 1.4% per year in 2016-40, according to the International Association for Gas. Much of it will be galvanised by the Middle East and China, which are projected to make up 25% and 31%, respectively, of the demand increase.

INDUSTRIAL ZONE: The new LNG export terminal will be an important asset for the larger industrial zone under development at Damerjog. Estimated at $6bn, the new zone is expected to include a petroleum refining plant, an ethanol plant, a cement grinding station, a building materials manufacturing area, a desalination facility and a power plant. The new zone will also be linked to another large-scale transport infrastructure project: a $3.4bn, 750-km rail line linking to Ethiopia, which began operations in 2018. “The new train line connection to the Horizon Terminal will be fundamental to increasing the quantity of oil transported to Ethiopia,” Houssein Ahmed Houssein, general manager at Horizon Djibouti Terminals, told OBG.

As a result of rising volumes, plans for the construction of another oil terminal at the Port of Djibouti are being discussed. “As current infrastructure projects are reaching saturation, the construction of a second storage facility is a priority in the short to medium term,” Dabar Adaweh Ladieh, director-general at the International Hydrocarbons Company of Djibouti, told OBG.