Not just a pipe dream [Archives:2004/744/Business & Economy]

June 7 2004

By Peter Willems
Yemen Times Staff

It's an ideal time to be an oil producing country. Crude oil prices have soared more than 25% in the past year to record highs. Around 70% of the Yemeni government's revenue comes from oil, and two decades after oil was first being produced, production is now up to approximately 450,000 barrels a day. With prices up this high, Yemen should be content.
But black gold doesn't last forever. Many believe that oil production may have reached its peak and might experience a slow decline over the coming years.
The best solution is Yemen's next best resource: natural gas.
It is estimated that Yemen has 16 trillion cubic feet of natural gas below its surface. And according to Jean-Francois Daganaud, General Manager of Yemen LNG, Yemen can produce and export 6.2 metric tons annually for the next 25 years.
But there is a hitch. Yemen LNG, the company given responsibility for gas in Yemen, has yet to find a buyer.
Seven years ago, Yemen was prepared to produce and export LNG (liquefied natural gas) and targeted the Asian market, particularly Japan, Korea and Taiwan. But around the same time, Asia was hit hard by an economic meltdown and potential customers ran for cover.
“Yemen LNG was ready to market gas in 1997 and planned to target Asia, but there was an economic crisis in Asia in the fall of 1997. There has been no increase in the demand for gas since,” said Daganaud. “Yemen LNG has had to go and look for other markets.”
While Yemen LNG is out searching for a market willing to commit to importing Yemeni LNG, it is ready to launch its project to get gas to a customer.
In the Marib area, Yemen Hunt Oil Co. extracts more than 3 billion cubic feet of gas per day, strips out 22,000 barrels of liquids to add to crude oil then re-injects gas back into the ground.
Once there is a customer, Yemen LNG will build a 320 kilometer pipeline that will carry gas from Marib to Bal Haf, a site on the coast west of Mukalla where a liquefaction plant will be built.
Shareholders of Yemen LNG (France's Total, state-owned Yemen Gas, US Hunt, and South Korea's SK and Hyundai) will pump $2 billion into the project if there is a buyer, and the pipeline and plant will take around 43 months to be completed.
“Our project is ready to be launched,” said Daganaud. “We have the gas.”
Since Yemen first started looking for customers in the late nineties, the international gas market has become more competitive.
“In 1997, suppliers of gas were masters of the market,” said Director General of the Gas Division of Yemen's Ministry of Oil and Minerals Taha Al-Ahdal. “But after the Asian crisis, demand has dropped and more suppliers have emerged. Suppliers now outweigh the demand for gas.”
Yemen also faces tough competition in the Arab region. It is believed that Qatar has over 50 times the amount of gas than in Yemen, and Qatar's reserves are under the sea, which provides easy access. Yemen's Gulf neighbor has already been a producer of gas for 10 years.
But Yemen LNG sees opportunities on the horizon. Asian economies that suffered from the crisis in the nineties have been showing signs of recovery in the last few years and are now growing again.
“If Asian economies take off, the demand for gas will go up with it,” said Daganaud. “This will offer a good chance for Yemeni gas to be sold. We have been waiting for a stronger demand, and now the possibility of having a market is increasing every day.”
Daganaud said Yemen LNG marketing is based on numerous advantages for potential customers if they decide to buy Yemeni gas. He mentioned that Yemen has proven to be a stable supplier. Since oil was first produced in 1986, there have been no interruptions of delivery, whereas countries shipping out of the Persian Gulf are operating in a potentially volatile area.
Yemen can compete on prices. Gas has already been extracted in the Marib region, so no investments will be required for discovering natural gas. Yemen LNG is also open to allowing a customer to buy into the company and become a partner.
With the worldwide economy finally on the rise again, Yemen LNG has added more to the countries it is targeting. China is now seen as virgin territory that could be a vast market to serve.
“We are going after the Chinese market,” said Al-Ahdal. “It is a very big market and has just started dealing with LNG. We hope it will develop in the next few years.”
Also on the list of potential buyers is the United States.
“The United States is now starving for gas,” said Daganaud. “The demand is huge, and it is draining the LNG suppliers everywhere.”
Another target Yemen LNG is keeping a close eye on is Korea. It may be in need of a new supplier as the demand for gas is on the rise. And, more importantly, the two Korean companies being a part of Yemen LNG – SK and Hyandai – would make it easier for Yemen to enter the Korean market.
“Korea is a very important market,” said Al-Ahdal. “The two Korean shareholders in Yemen LNG are big companies in Korea. It would be a good way to enter Korea with their help.”
And although Yemen is still waiting for a buyer of LNG, the chances of finding one soon are increasing.
“We are watching carefully because if economies take off in the Far East, markets will ask for more natural gas,” said Al-Ahdal. “We are watching the Asian economies, especially the Korean market, and we are starting to see a window opening.”