November 2016, Vol. 243, No. 11


Horn of Africa Pipelines Garner Foreign Attention

Horn of Africa Pipelines Garner Foreign Attention

Two countries in the Horn of Africa peninsula, Ethiopia and Djibouti, are fast becoming the center of attention for foreign investment in infrastructure projects.

Djibouti, with its Red Sea port, is of strategic importance as the gateway to imports and exports for its landlocked neighbors, most notably Ethiopia. However, it is its access to the Gulf of Aden and onward to China’s trading global network that underpins its drive to cement its position as the region’s trading hub.

Ethiopia, with a population of nearly 100 million in 2015 and real gross domestic product growth averaging 10.9% in the decade to 2014, relies on about 500 fuel trucks from Djibouti port, traveling 498 miles (800 km) along narrow two-lane roads, to meet its fuel needs. For its energy security and to sustain its current rate of economic development, Ethiopia needs to supplement its recently opened rail link to Djibouti’s Red Sea ports.

Two major pipeline projects have been proposed. The first, an import pipeline, named after the Horn of Africa, is a 340-mile, 20-inch, multi-product fuel pipeline designed to import 240,000 bpd of diesel, gasoline and jet fuel from the port of Djibouti to central Ethiopia.

It will transport refined oil products from Damerjog in Djibouti to a storage facility at Awash, near the capital of Addis Ababa, to meet an annual growth in demand rate of 15%. A second pipeline for exports is planned to link the soon-to-be developed Ethiopian gas fields with a new LNG liquefaction plant and port in Djibouti for onward shipment to China.

Import Pipeline

The $1.55 billion Horn of Africa fuel pipeline is a multi-fuel facility that will transport diesel, gasoline and jet fuel from ports in Djibouti to central Ethiopia to meet projected annual demand growth of 20% for the near future. With a 20-inch diameter, it is designed to carry 240,000 bpd, and will transport refined oil products from Damerjog, Djibouti to a 950,000-bbl storage terminal, as well as truck-loading facility at Awash, near the country’s capital of Addis Ababa in central Ethiopia.

As noted, Ethiopia relies on fuel tankers to bring supplies of diesel, gasoline and jet fuel. This dependence on road transport is costly, time-consuming and polluting. Construction of the pipeline is due to start by the end of the year with completion expected in late 2018.

The pipeline promises multiple major benefits; most importantly, unlike road transport, it will have enough capacity to meet Ethiopia’s rapidly growing demand for fuel while significantly reducing CO-2 emissions. In the process, the project will also reduce road congestion for the thousand or so remaining goods-trucks crossing the border between the two countries.

The new pipeline will cut traffic congestion, decrease carbon emissions, improve energy security, reduce fuel transport costs and aid economic development. The project is in the set-up phase with detailed design and procurement taking place in preparation for construction beginning shortly.

A framework agreement for construction of the Horn of Africa multi-product fuel pipeline was signed by the Ethiopian and Djibouti governments and the developers Black Rhino Group and South African-based Mining Oil & Gas Services (MOGS) in October 2015. Reflecting the importance of this project, the president of Djibouti, Ismail Omar Guelleh, and the prime minister of Ethiopia, Hailemariam Desalegn, attended the signing ceremony.

The pipeline is being developed by a joint venture between Black Rhino, owned by U.S. investment company Blackstone Group, and MOGS for a 30-year concession period.

Black Rhino was founded to meet the critical needs for infrastructure and energy development across the African continent. MOGS is a unit of Johannesburg-based sovereign fund of the Setswana-speaking community in South Africa’s North West province Royal Bafokeng Holdings. This partnership of foreign private and African institutional investors is an example of the beginning of an important trend for the pattern of future of investment in African infrastructure.

Turner & Townsend and MSA have been appointed to implement the project. The former is contracted to deliver project-control services including, estimating costs, scheduling, performance management, reporting and document control. MSA and its associate consultants will provide environmental and sustainability consulting services.

“The pipeline will increase energy security, aid economic development and reduce harmful emission,” said Turner & Townsend Director Mark Haselau. “The challenge lies in overcoming the logistical, infrastructure and regulatory issues presented on the African continent including, the physical importation and transportation of materials to the many sites and laydown areas along the pipeline’s route.”

Gas Export Pipeline

The long-held prospect of monetizing reserves of an estimated 4.7 Tcf of gas and 13.6 MMbbls of associated liquids held in the Calub and Hilala gas fields in the Ogaden basin in the southeastern part of Ethiopia is at hand following China’s GCL-Poly Petroleum Investment’s production-sharing agreement with the Mines Ministry.

The Chinese company has agreed to fund the necessary off-take export pipeline at a cost of $4 billion. The 435-mile pipeline with a 12 Bcm/y capacity will link the gas fields with a planned 10-million-ton liquefaction plant and export facility at Damerjog on the Red Sea coast of Djibouti.

The pipeline will enable the Chinese developers to export Ethiopian gas to China. Construction work is expected to start shortly and will take three years to complete, according to the Ethiopian news website Addis Fortune.

The agreement between Djibouti and POLY-GCL was signed in October 2014, the protocol agreement between Djibouti and Ethiopia was signed in February 2015 and the heads of agreement between Ethiopia and POLY-GCL was signed in September 2015.

Last year, Ethiopian Mines Minister Tolossa Shagi said his country expects to earn more than $1 billion in annual foreign exchange earnings from exporting gas to China when the pipeline and liquefaction plant is completed in 2018. The Djibouti government is also building a gas storage and refinery complex for an estimated $2.6 billion to reinforce its hub credentials.

The close cooperation between Ethiopia and Djibouti reflects the realization that working together fosters mutual economic benefits and lays the groundwork for future economic development. Ethiopia shares a geological connection with Kenya’s recent oil and gas discoveries, signifying the possibility of future oil and gas discoveries alongside an already identified and estimated 3.89 billion tons of oil shale.

Future oil and gas developments will require greater amounts of foreign capital which will only become available if there is stability in this region.

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