Will take pressure off declining oil reservesYemen scores big on natural gas [Archives:2005/818/Business & Economy]

February 21 2005

By Peter Willems
Yemen Times Staff

Yemen has scored big in recent deals that will see it send millions of tones of natural gas to several foreign markets for two decades.

Yemen LNG announced last Wednesday that it signed agreements to supply buyers with up to 6.5 million tons of natural gas annually.

“We have been able to secure the sale of liquefied natural gas (LNG) which will be very close to the maximum quantity we will be able to produce,” Jean-Francois Daganaud, General Manager of Yemen LNG, told The Yemen Times. “This was the main step for producing gas in Yemen. Finding buyers was the major challenge we had to face, and from here on out we will turn the project into reality.”

Yemen LNG, which has been searching for markets willing to buy natural gas for the last eight years, signed three agreements. It will provide Tractebel EGI, part of the French utility giant Suez, with 2.5 million tons of LNG yearly, while Total, the leading shareholder of Yemen LNG, will purchase two million tons annually. Both will ship natural gas to the United States, which begins in 2009 and will last for 20 years.

The third agreement was with Kogas (Korea Gas Corp.) as Yemen will supply South Korea between 1.3 million and two million tons each year for 20 years. It is planned for Yemeni gas to reach South Korea near the end of 2008.

According to Daganaud, the agreements will be finalized by the middle of this year.

Yemen has already developed natural gas fields. Hunt Oil Co. extracts around three billion cubic feet of gas daily in the Marib region. It strips out 22,000 barrels of liquids to add to crude oil then re-injects gas back into the ground.

Yemen LNG plans to build a liquefaction plant at Bal Haf, on the coast near Mukalla, and will have the total capacity of producing 6.7 million tons of LNG each year. A 320 kilometer pipeline will also be constructed to carry gas from Marib to Bal Haf. It will take around 43 months to complete the project.

Last August, Kogas sent out invitations to nine countries to bid for supplying South Korea with gas. Studies have shown that the demand for natural gas in South Korea will increase 5% every year over the next decade. Yemen, Malaysia and Russia will provide South Korea with five million tons of gas per year.

Analysts say that with competition heating up between suppliers, the global market for gas has turned into a buyers market: It is said that Kogas will pay between 35% and 40% less than what it paid under previous contracts.

Daganaud believes that Yemen LNG had an advantage of winning the contract with South Korea. Two shareholders in Yemen LNG are South Korean companies, SK Corp. and Hyundai Corp. SK Corp. runs the largest oil refinery in South Korea and has been involved in the oil business in Yemen since 1986.

“There is little doubt that one of the reasons Kogas chose Yemen LNG is because it has Korean content in the company,” said Daganaud.

Shareholders of Yemen LNG include France's Total (42.9%), state-owned Yemen Gas (23.1%), US Hunt Oil (18%), and South Korea's SK (10%) and Hyundai (6%).

Yemen LNG has been targeting the United States as a potential customer for over a year. The United States takes up around a quarter of natural gas consumption worldwide and recently became aware that it would need to import gas in the near future.

“The United States is a new market,” said Daganaud. “Since its exploration of gas fell short of demand in the future, it became a new potential buyer.”

Yemen LNG started looking for customers in the mid-nineties, especially focusing on the Far East, but faced a setback when Asia suffered from an economic meltdown in 1997. Analysts claim that it has been critical for Yemen to find buyers of natural gas since its oil reserves will dry up in the future. Last year, The World Bank estimated that oil reserves dropped nearly 9%.

But Yemen, which has 16 trillion cubic feet of natural gas below its surface, will soon be able to use gas as its second natural resource that will bring in substantial revenue.

“This agreement marks an important step for the development of natural resources of Yemen,” said Rasheed Baraba, Minister of Oil and Minerals. “We are pleased to be working with such a fine group of international companies whose expertise and skills can only complement Yemen's high potential in the oil and gas sector.”