A pipeline agreement signed in December 2019 between Ethiopian and Chinese partners marks a key step forward in Djibouti’s efforts to develop a delayed liquefied natural gas (LNG) export terminal. This LNG terminal would enable Djibouti to carve out a niche for itself as a regional energy hub. Under the terms of the multilateral agreement, Djibouti would import gas feedstock from its landlocked neighbor via a 700 km pipeline. It would then be processed and exported from an LNG terminal under development in Damerjog, a small village in eastern Djibouti.

This ambitious project is slated to receive a reported USD4 billion worth of investment, USD3 billion of which will be spent inside Djibouti. The area is being targeted as a maritime hub, with work currently under way on a USD70 million terminal for livestock.

The LNG terminal and gas pipeline will be built by Poly-GCL Petroleum Group Holdings, a joint venture (JV) between state-owned China Poly Group Corporation and Golden Concord Group (Hong Kong). The JV is to construct the terminal, but the project was originally scheduled to launch three years ago.

Renewed interest in the development follows the cancellation in January of another landmark energy infrastructure project, the Horn of Africa pipeline. The development was cancelled by the Ethiopian government, which prefers to transport refined energy products via the newly completed, 750 km railway link, developed at a cost of USD3.4 billion in (mostly) Chinese funding.

Financed by the African arm of US-based equity group Blackstone, the USD1.6 billion project, announced in 2015, included a 950,000-barrel storage facility in Damerjog, and a 550 km pipeline to carry processed oil products to Awash in central Ethiopia. However, rail is not seen as a competing mode of transport for the LNG project, as liquefaction will take place at the Damerjog terminal on the Djibouti side of the pipeline.

While the magazine and newspaper headlines reported news that were not especially encouraging for the Djibouti government’s campaign to attract port investments in April 2019 – when the London Court of International Arbitration ruled that Djibouti violated the rights of Dubai port operator DP World to manage the Doraleh Container Terminal when the government seized control of terminal operations – other investors have now stepped up with yet more investment into Djibouti’s growing USD2 billion economy and the city-state’s strategically located port complex, which is one the most sophisticated ports in the world.