Yemen’s oil embarks on comeback trail

Sana’a: OMV AG’s return to an oilfield in Yemen marked a small step toward a comeback in production for the Middle East’s poorest country, where a Saudi-led coalition has intervened on behalf of Yemen’s legitimate government against the Iran-backed Al Houthi militia. The war has choked energy output and shuttered a key export terminal and pipeline.

Vienna-based OMV reopened production wells at Shabwa province in Southern Yemen in April, three years after withdrawing due to the conflict. It exported a first cargo of 500,000 barrels in July.

“For now, the security situation is manageable,” OMV Chief Executive Officer Rainer Seele said in an interview. “We decided to go back even though there is always a risk that we’ll have to stop producing there. The infrastructure is in place and working.”

Yemen’s oil production has all but collapsed since 2015. The civil war, which was sparked by the Al Houthi-led coup against the legitimate government of President Abd Rabbo Mansour Hadi, spurred Total SA to shut a gas-exporting plant and DNO ASA to suspend operations. A return to pre-war output levels for crude would put Yemen on par with Opec’s Gabon and Equatorial Guinea.

“It is premature to say that Yemen is on its way back to the oil market,” said Riccardo Fabiani, an analyst at Energy Aspects Ltd in London. While the region where OMV is operating is “relatively unscathed” and its export facility is still working, “other fields are in poorer condition and, most importantly, export terminals have been badly damaged or controlled by the Houthis.”

The Houthis still occupy the capital Sana’a, the key export terminal Ras Issa on Yemen’s West Coast and a pipeline to the port from oil-producing Marib province. They have fired missiles at airports and other targets in Saudi Arabia.

The war’s impact on energy supplies has been almost as stark. By 2016, Yemen’s oil output had plunged to 957,000 tonnes from 7.78 million tonnes in 2014, before the war, while natural gas production tumbled to 431,000 tonnes of oil equivalent from 8.4 million tonnes over the same period, according to International Energy Agency data.

“We hope this step by OMV will encourage other companies to resume production of oil,” Shawki Al Mikhlafi, deputy oil minister, said in a phone interview. “It is the backbone of our economy, and without its production, the economy cannot recover.”

Calvalley Petroleum (Cyprus) Ltd, operator of Block 9 in the Masila oilfields in the eastern Hadramout province, said in an email that it is “tentatively looking” to begin operations in the first part of 2019. The potential resumption is a result of collaboration between the government and local authorities, Calvalley said. It put Yemen operations on hold in 2015 for safety and security reasons.

Oslo-based DNO’s operations remain suspended due to the country’s security and political conditions, a spokesman said when asked if the company is considering a restart. A Total spokeswoman said the LNG plant is still in preservation mode.

The Austrian-based firm, as operator of the S-2 block, is trucking its new production to a 204-km pipeline that transports the crude to the Al Nushaima terminal on the Indian Ocean, according to the company. There have been no “major” incidents or disruptions since it resumed pumping, it said.

OMV’s joint venture is producing about 13,000 barrels a day, said Al Mikhlafi, the deputy oil minister. The company has a 44 per cent stake in the venture, with China Petroleum & Chemical Corp (Sinopec) owning 37.5 per cent, and their Yemeni partners holding the rest.

The venture sold its first 500,000 barrels of Shabwa output in July to China, Yemen’s official Saba news agency reported, citing the ministry. OMV declined to say when it expects to make another shipment. Twenty per cent of the revenue from the sales will be returned to Shabwa province for development projects, according to Saba.