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(Reuters) – China’s POLY-GCL Petroleum Group Holdings Ltd has signed a memorandum of understanding (MoU) to invest $4 billion in a natural gas project in the tiny Horn of African nation of Djibouti.
The project includes a natural gas pipeline, a liquefaction plant and an export terminal to be located in Damerjog, near the country’s border with Somalia.
Djibouti, with a population of less than one million, has long punched above its weight due to its strategic location on the Gulf of Aden, one of the world’s busiest shipping routes connecting Europe to Asia and the Middle East. The country hosts large U.S. and French naval bases and China is also building a naval base.
Energy minister Yonis Ali Guedi told Reuters after the signing of the MoU on Monday that further negotiations over concession agreements for the project would happen within the next six months and construction would begin next year. He said the project would “generate substantial income for the state.”
POLY-GCL, a joint venture between state-owned China POLY Group Corporation and privately owned Hong Kong-based Golden Concord Group, could not immediately be reached for comment.
The gas pipeline will transport 12 billion cubic meters of natural gas a year from Ethiopia to Djibouti, according to the MoU. Last year, POLY-GCL finished drilling appraisal wells for gas deposits in Ethiopia’s southeast, a project linked to the export terminal plans in neighbouring Djibouti.
The liquefaction plant has a target capacity of 10 million tonnes per year of liquefied natural gas (LNG), though production is targeted to begin in 2020 at just 3 million tonnes per year, a representative of the Chinese company said at the MoU signing.
In January, the government launched the construction of a project billed as Africa’s largest free trade zone, to be built by China’s largest port operator. The free trade zone is seen as part of China’s bid to expand trade routes, a series of infrastructure initiatives stretching across 60 countries that the Chinese have dubbed “One Belt, One Road”.
(Additional reporting by Chen Aizhu in Beijing; Editing by Maggie Fick and Mark Potter)