YLNG: We are the largest Investment in Yemen [Archives:2006/963/Business & Economy]

July 13 2006

Interviewed By: Raidan Al-Saqqaf
[email protected]

The Yemen Liquefied Natural Gas Company (YLNG) is one of the largest investments in Yemen and it holds the hopes of the Yemeni government as the prime means to finance Yemen's Development. In this interview Yemen Times spoke to Mr. Joel Fort, General Manager of YLNG and discussed a number of important subjects related to the project and its environmental impact in detail.

YT: Could you please brief us on the motivation to establish YLNG, a summary of the establishing partners and the potential of the projects?

JF: Let me begin by saying that the launch of the Yemen LNG Project comes at a time when the international demand for Liquefied Natural Gas (LNG) has grown tremendously. LNG offers an alternate source of energy which is both clean and cost-effective and can be used in a variety of industrial fields.

Recognizing this economic potential, the Government of Yemen – represented by the Yemen Gas Company – together with the other shareholders in Yemen LNG made the decision to launch the Yemen LNG Project. The current shareholders are Yemen Gas Company, the General Authority for Social Security and Pensions (GASSP), Total, Hunt, Kogas, SK and Hyundai .Upon completion of the construction phase, the project is expected to generate the largest single revenue for the country during the period of 20-25 years.

YT: How do you assess the economic returns of this project, considering that Natural Gas will be the main source of revenue for the government of Yemen by the year 2015?

JF: The economic significance of the LNG deal can be seen through two different lenses. First, the size of the project in numeric terms is indicative of the benefits that the project will generate for Yemen. The US$ 3.7 billion capital allocated by shareholders, including the Government of Yemen, makes the project the largest investment and operation ever undertaken in Yemen, at around 40 times the average large investment in the country. In addition, the size of the plant and the pipeline that will be constructed is very big even by international standards. Equally important are the complexity and modern technology used by the project which makes it among only twenty similar projects in the entire world.

Second, the project will directly contribute to macroeconomic development of the country, with Yemen expecting to generate something between US$ 10-20 billion over the course of 20 to 25 years)the lifespan of the project according to the gas development agreement.

This is not all, as the project is providing major investment opportunities for national companies, taking HAWK for instance which won big contracts in the project. Many job opportunities will be created by the project, particularly during the construction phase, with also several hundred permanent highly-skilled positions for Yemeni citizens throughout the lifespan of the project. Over 300 Yemeni technicians will be receiving intensive training both in Yemen and in other parts of the world to take over operational and supervisory functions in the operations of the project in the future.

All this puts Yemen on the world investment map, thereby making the country a destination for foreign investors. It also provides opportunities for local investors to move internationally.

YT: You mentioned Yemen will get something between 10-20 billion over the period of 20-25 years, giving a best case scenario of 1 billion annually and a worst case scenario of 400 million? Any research or forecasts?

JF: It is impossible to state positively that these indicative figures are worst case and best case, although the lower figure appears quite robust in any circumstances. The reality is that the revenue will be a function of the prices at which the gas will sell, and this price will vary depending upon the economic conditions over time. The range which has been supplied here is representative of a conservative approach. In fact there is a case to build to demonstrate that the revenues may be higher that the top of the range given here above ($ 20 MM), if fossil energy prices were to stay at high levels for long. Conversely the gas sales contracts or the agreements between YLNG and the State incorporate guaranteed minimum selling prices, which in turn are protecting the State of Yemen from a very unlikely collapse of energy prices. In other words the State can benefit of high prices and is protected against depressed prices.

YT: In January 2006, the cabinet approved a decree that included the intention to start the implementation of the Extractive Industries Transparency Initiative. Is there a plan to include YLNG into reaching new levels of disclosure in revenue transparency and accountability, considering Natural Gas to be Yemen's most valuable resource?

JF: Both Yemen LNG as a company and its international shareholders are supportive of the Extractive Industries Transparency Initiative (EITI) principles and welcome their implementation in Yemen. Recently, Yemen LNG sponsored a presentation by TOTAL experts on this approach. This presentation was delivered during the Franco-Yemeni conference on the implementation of the Merida Convention in Yemen, a conference jointly organized by the Central Organisation for Control and Accounting (COCA) and the French Embassy.

YT: With Regard to the Belhaf Plant at the Arab Sea Coast, could you inform us about the planning and construction of the plant, as well as its importance to the success of the project?

JF: YLNG is currently constructing a liquefaction plant in Balhaf on the coast of Shabwah, 200 km south-west of Mukalla, a pipeline to connect the two gas processing centres in Marib, where the gas will be coming from, a spur line to the city of Ma'bar to supply domestic consumption, and a 320-kilometer, 38-inch pipeline from the processing centres to the plant.

The construction involves building and operating two-train liquefying units for exporting LNG, expandable to three trains in the future. The plant has a guaranteed production capacity of 6.7 million metric tons per year. A thorough survey of all potential port sites in Yemen identified Balhaf to be the most suitable location on a balance of technical and environment protection considerations. Balhaf has the lowest geotechnical risk, natural protection from the main eastern waves of the winter monsoon)thereby eliminating the need for a breakwater, the lowest downtime due to wind, and a naturally deep harbour which reduces jetty length and dredging requirements and which can accommodate large-capacity LNG carriers.

YT: When was the site selected and were there any alternatives?

JF: In 1995 commenced the initial process to identify the best LNG plant location and the most appropriate pipeline route connecting the upstream facilities to the LNG terminal. Every effort has been made to ensure that both the plant location and pipeline route would have a minimal impact on the environment and local communities.

A thorough survey of all potential port sites in Yemen identified Balhaf to be the most suitable location for a number of reasons. Balhaf has the lowest geotechnical risks, natural protection from the main Eastern waves of the winter monsoon, eliminating the need for a breakwater, the lowest downtime due to wind, and the naturally deep harbour which reduces jetty length and dredging requirements and which can accommodate large capacity LNG carriers. On the environmental and social side, the selection of the plant location and pipeline route was made in order to minimize impacts on livelihoods and natural habitats by mainly passing through deserts and thinly populated areas.

YT: Balhaf enjoys the highest diversity of coral reefs as well as fishing communities in the region. What is the environmental impact of the project on marine life and fisheries wealth in the Gulf of Aden and how was this impact assessed?

JF: Let me start by referring to the comprehensive Environmental and Social Impact Assessment (ESIA) studies that the company has undertaken since 1997, completely revised and updated in 2005, to carefully examine all possible effects on the environment and communities. The ESIA was officially disclosed and discussed with various concerned stakeholders, including government and non-government organizations, and is available in full on our website [www.yemenlng.com]. We realized from the beginning the likely effects of such a big construction work in Balhaf and the 320 km of pipelines connecting the liquefaction plant to the Marib processing fields on the overall environment and/or the populations. Bearing this in mind, ESIA sought to identify concrete measures to avoid or at least mitigate any potential effects but also to leave a positive legacy in the communities in which it is operating. Most of these measures were based on consensus reached in debates with local communities and/or government authorities, founded upon the principles of fairness and transparency.

The company has identified some inevitable impacts, primarily related to the loss of a property or land or prevention of ownership and/or utilization of one because of the project. The other relates to the loss of source of income, such as the situation that may be lived by the fishermen who lost the fishing harbour and safe haven due to the dedication of Balhaf to the purposes of the LNG plant. For each specific concern, the company has developed a comprehensive analysis and is taken careful measures to compensate for any loss.

YT: Do you have any plans or mechanisms to compensate for any such marine loss similar to that of Land Compensation Committee?

JF: For the compensation of fishermen, for example, fishermen associations and confederations in the affected regions are represented in the Company's fishermen compensation committee, providing specific measure to address both the loss of shelter and safe haven (caused by dedicating Balhaf to the project) and the loss of income that would have otherwise been generated through fishing activities.

I will also give you one concrete example which should give you a sense of how the company is addressing environmental concerns from which you can draw analogy with other aspects of our community and environment work. This relates to the effects on coral reefs in the Balhaf shores.

1- The design of the plant has undergone several modifications from original plans to avoid areas populated by sensitive coral reefs, as advised by YLNG experts.

2- The location of the off-loading facility and harbour was selected to cross less sensitive coral areas.

3- At the advice of specialists, the end of the harbour towards the shore has been constructed in the form of a bridge to ensure the continuation of water circulation on both sides of the harbour. The purpose is to maintain an environment within which sea life can have minimal interference.

4- A team of experts from the Hadhramout University of Science has been commissioned to check water turbidity in the areas surrounding the harbour/jetty construction on a regular basis and such information is documented and analyzed for future planning and enhancements.

5- To ensure that dust and particles resulting from the construction of the harbour do not reach the corals around it, the Company has installed water silt curtains)a shield to prevent such particles from getting through to coral reefs.

6- YLNG on top of all this has commissioned an internationally recognized organization, called CREOCEAN and an independent reputable coral specialist to conduct regular surveys for the coral reefs to continually provide feedback on impacts on the corals, if any, thereby advising the company to take action as deemed necessary.

On the compensation of fishermen, on the other hand, agreements have been reached with fishing communities on some concrete compensation measures. These include:

1- Installing a 750-meter breakwater to substitute for the lost 'safe heaven' which can accommodate upto 255 fishing boats.

2- High-tech aggregation devices both around the breakwater and in certain locations along the shore to help attract fish for easy fishing. The design and studies were commissioned to a British specialized company called McAllister Elliot & Partners.

Additional measures are also being taken, including the construction of an access road at Jela'a near Balhaf port, technical mechanisms and computers for better monitoring of auction markets at Bir Ali area)a regional fish market about 30 km from Balhaf, in addition to many smaller services in this respect.

YT: What are your corporate social responsibility strategies considering that you are the largest corporation to exist in Yemen? And, have you done any social impact studies according to which you will ensure that compensation is reasonable and satisfactory?

JF: To summarize what I indicated earlier, we are undertaking several levels of action to this effect: 1) preventing whenever possible or at least mitigating any potential effects on the people or the environment; 2) fairly compensating those who are adversely affected by the project; and 3) taking measures to leave a positive legacy in the communities in which we are working. As such, we are committed not only to address the effects but also to make a contribution to the development of the country, particularly the communities most affected by the project or those in close proximity to its construction and operational activities. All of this has been captured within the continuously updated ESIA document mentioned earlier.

YT: Has your damage limitation program been endorsed by the Environmental Protection Authority?

JF: The Environmental Protection Authority (EPA) and the Ministry of Water and Environment have approved in writing the Environmental and Social Impact Assessment and mitigation measures by means of a letter dated December 5, 2005. In addition, the Ministry of Oil and Minerals has endorsed the (EPA) and Ministry of Water and Environment approval in a letter dated June 26, 2006.

YT: Any last comments?

JF: Let me reiterate the centrality of the project to Yemen's economic development. It will contribute to improving national capacities and attracting more national and international investment to Yemen. It is also an important private-public venture owned by both the Government of Yemen and the shareholders that will set the ground for further joint economic initiatives in the country. The company's commitment to Yemenisation could also set an example for other companies in the future.