Africa’s Next Oil Frontier – Ethiopia?

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Sitting athwart the headwaters of the Blue Nile, Ethiopia has long seen its energy future in its hydropower potential, being able to export electricity to neighboring countries.

That picture may be about to be somewhat altered however. British oil firm New Age (African Global Energy) Ltd works a concession in Ethiopia's southeastern Ogaden basin blocs 7-8 and its Adigala lease with its Canadian oil firm partner Africa Oil.

On 12 February New Age (African Global Energy) Ltd found an oil and gas flow at its Elkuran-3a appraisal well depth of 3,900 feet. The company began drilling the appraisal well in October 2013, with a targeted depth of 9,350 feet.

While New Age (African Global Energy) Ltd executives are doubtlessly excited, local petroleum specialists noted that the results are similar to those of American company Tenneco that drilled the first exploration well in the Elkuran locality in 1972. A petroleum expert told the Ethiopian media that the discovery does not necessarily mean that there is a commercial deposit, commenting, "Oil and gas flows are very common in that region, especially in the Elkuran and Hilala localities. More exploration work is needed." 

Another petroleum specialist observed that the reservoirs at Elkuran-3 have low porosity and permeability and will likely require acid or fracture stimulation to produce the necessary commercial levels, commenting, "Oil and gas-condensate was recovered from one of sample zones. At the base of the well, a flow of gas was encountered and the drilling is suspended in order to mobilize test equipment to evaluate this zone. A decision has also been taken to deepen the well to below the initial planned target depth of 7,545 feet, to evaluate the deeper sandstone zone which is considered to have a significant gas condensate potential."

New Age (African Global Energy) Ltd is a newcomer to African energy development, being founded in London in 2007. It holds licenses for 13 onshore and offshore blocks in Congo-Brazzaville, Ethiopia, South Africa, and Kurdistan covering an area of approximately 88,000 square kilometers and it has a portfolio of development, appraisal, and exploration assets with 37.5 million barrels of oil equivalent of gross probable reserves, 17.1 million barrels of oil equivalent of gross contingent resources, and 702.2 million barrels of oil equivalent of gross prospective resources.

For the moment, Ethiopia is pressing forward with its grandiose hydroelectric plans, most notably the $4.2 billion, 6,000-megawatt Grand Ethiopian Renaissance Dam on the Blue Nile, which has unsettled Egypt. Egypt fears that the dam's completion would diminish 20 percent of its Nilotic water flow, leading Cairo last month to demand Ethiopia suspend construction work on the dam on the Nile's main tributary. After Ethiopia rejected Egypt's demand Egypt vowed to protect its "historical rights" to the Nile "at any cost."

As for developing the Ogaden region's potential oil and natural gas riches, one group is already suffering – the local population. During a recent interview Ogaden National Liberation Front (ONLF) founder Abdirahman Mahdi said, "The resources in this region will make Ethiopia rich but will keep us impoverished. A settlement is all we can hope for to protect our claim to some of the economic advantages of our natural resources." 

Mahdi's concerns are well-founded, as currently besides New Age (African Global Energy) Ltd and Canada's Africa Oil there are two oil companies, both Chinese, finalizing exploration plans for the Ogaden region: Hong Kong's South Western Energy and China's GCL Poly Petroleum Investment.

The 8-10 million Somali ethnic population living in the Ogaden basin within Ethiopia's Somali National Regional State (SNRS) have stated that they've already been subjected to scorched earth evictions in advance of increased oil and natural gas drilling, and regional specialists warn that a lack of genuine benefit sharing could escalate regional instability and reinforce separatist tensions as foreign energy companies prepare to extract oil and gas,

An ONLF Press Release dated 30 December 2013 stated, "The Ethiopian regime has ordered its army in Ogaden to displace the rural population from large tracts of the Ogaden grassland by burning traditional pasture rich areas in order to clear the land for oil exploration. The Ethiopian army has so far torched large tracts near the following towns: 1. Shilabo-between Jeexdin (CALUB) Gas oil field and Qamuda including areas near Jeexdin, Laasoole and Qarsoon. 2. Godey-Danan- between Bawo, Oman and Oboley Valleys. 3. Fik- Dhegahbur-Jigjiga Triange- between Ceelo-Obo, Gooro Haas, Gabiib, Aware-(in daaqato valley) , Sattu, Jamara, Faafan and areas North of Obole."

Somalia and the Islamic militant movement al Shabaab are right next door. When the Arab Spring swept the Magreb three years ago Libya broke out into civil war in February 2011 China had to evacuate more than 35,000 workers and lost $18 billion in energy investments in the process. Something for the Chinese leadership in Beijing to ponder.

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