Ethiopia May Operate Gas Fields Amid Dispute With China’s PetroTrans

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Map of Ethiopia

Ethiopia’s government may develop gas fields in its eastern Somali region itself or with a partner while a contractual dispute with a Chinese oil and gas company is resolved, Mines Minister Sinknesh Ejigu said.

Five production-sharing agreements signed on July 22, 2011, with PetroTrans Co. for 10 blocks in the Ogaden area of the region, which include the Calub and Hilala fields with natural gas resources estimated at 4 trillion cubic feet, were canceled on July 1, Sinknesh said on July 31.

“The Ethiopian government is responsible for developing this,” she told reporters in the capital, Addis Ababa. “We can develop this. Let them go to arbitration and if we want — we have the finance and the technical capability — we can do it.” The government will also consider joint ventures and other options, she said.

Landlocked Ethiopia, Africa’s second-most populous nation, produces no oil or gas and is partly reliant on coffee and other agricultural exports for annual foreign-exchange earnings of around $3 billion. SouthWest Energy, based in the capital, said it hopes to strike crude in the Ogaden next year.

The exploration and development contracts with Hong Kong- based PetroTrans, which the government hoped would bring financing of as much as $5 billion, were revoked after repeated warnings about a lack of investment and activity, Sinknesh said.

“We were flexible because we thought this was a big company,” she said. “They were talking too much, they were saying they have money, but it was not found to be so.”

’No Breach’

In its termination notice, the ministry said PetroTrans failed to arrange a loan to be repaid from future revenue, the company said yesterday in an e-mailed statement attributed to its lawyer, Philip Hirschler.

“PetroTrans rejects the notice as invalid and denies that it is in breach of” agreements, Hirschler said. “PetroTrans has made considerable investments in connection with the petroleum production-sharing agreements, remains committed to this project and will continue to seek to resolve its differences with the Government of Ethiopia amicably.”

The concessions, including gas reserves discovered in the 1970s, were relinquished by Malaysia’s state-owned Petronas Nasional Bhd in October 2010.

PetroTrans fulfilled its obligations by analyzing data and signing contracts for surveying and drilling, and will take the dispute to arbitration in Geneva unless the decision is reversed, the company said in a July 12 letter to the ministry. It has the right to sue any company that takes control of the blocks until settlement, according to the letter.

Sinopec, CNPC

The company said it approached state-owned China National Petroleum Corp. and China Petrochemical Corp. about working together in Ethiopia. It also “significantly advanced negotiations” for the construction of a pipeline to Djibouti and natural gas processing facilities at the neighboring country’s port, it said.

Lenders refused to fund the project citing “security concerns and sovereign financial credibility issues,” PetroTrans said in the document that was sent to the ministry.

The Ogaden National Liberation Front has fought a low-level insurgency in the area since 1984 seeking greater autonomy. In April 2007, the banned group attacked a site operated by China’s Zhongyuan Petroleum Exploration Bureau, killing nine Chinese workers and 65 Ethiopians.

The letter is “not relevant to the point of termination,” Sinknesh said in a phone interview today.