Yemen busy with key projects

It is unfortunate that Yemen is engulfed in violent problems at a time when it commissioned the largest industrial project in the country.

Last November 7, the first shipment of 149 thousand cubic metres of liquefied natural gas (LNG) left the Belhaf terminal heading for South Korea after the successful commissioning of Yemen LNG project, the largest industrial project yet in the country.

More shipments are scheduled, signalling the steady operation of the first of two trains of the project.

The second train will be completed one year from now to make the capacity of the project 6.7 million tonnes a year of LNG.

While Yemen LNG Company was incorporated in 1995 between Total (39.62 per cent), Hunt Oil (17.22 per cent), Yemen Gas (16.73 per cent), Korean Companies (21.43 per cent) and the remaining 5 per cent for the General Social Security and Pensions of Yemen, the project was delayed for many years due to financing difficulties in the wake of the Asian crisis of the late 1990s.

The project was launched in 2005 after all long-term sales agreements were signed. Due to this delay, the project was caught by the rising costs of all engineering projects --especially in the oil and gas industry and the final cost of $4.5 billion (Dh16.5 billion) is probably very much higher than the shareholders ever imagined. The 2005 estimate was reported to be $3.7 billion.

Encouraging features

Yet the project went ahead due to a number of encouraging features.

To start with there was no need for a substantial investment in the upstream because the project depended on the associated gas from the Mareb oil fields which have been producing oil for many years and re-injecting the gas to enhance oil recovery.

Therefore, the costly upstream facilities and initial gas processing units are already there and will be complemented by one more processing unit and a 20 inch, 25 kilometre connecting pipeline only.

The laying of the 320 kilometre long and 38 inch diameter pipeline and the liquefaction plant at Belhaf with its associated storage and shipping terminal were the most contributors to the final cost.

The second feature is that Mareb oil production is falling and it became evident that accumulated injected gas should now be used to generate revenue in addition to oil.

The reserves here and allocated to the project are 9.15 trillion cubic feet, sufficient for the full utilisation of the project for 20 years after allowing for one trillion cubic feet for domestic use.

Finally, Yemen does not have a domestic network for gas utilisation as a source of energy and therefore an export project is not only the immediate answer to the desire to use the gas but it may also create the nucleus for domestic consumption in place or along the pipeline route.

In fact Yemen opted to almost double the power generation in the country by installing 800 MW power generation units in Mareb and transmitting the electricity to more populous regions.

There is also a future spur pipeline from Mareb to transmit 100 million cubic feet a day of gas to the city of Mabar to build the domestic consumption of gas.

These moves will undoubtedly lead to the planning of more gas-dependent projects including fertilisers and petrochemicals where there is none in Yemen now. The revenue from the project is now estimated at $30 to $50 billion over the next 20 years.

The recovery of gas prices could make that much more. The proven reserves of gas in Yemen are 17.3 trillion cubic feet which in heat value could be close to its oil reserves of 2.8 billion barrels.

While oil reserves have been slowly falling in the last few years and only sufficient for 23 years at current production, gas reserves could go for a much longer period of time even if domestic consumption picks up.

Of course it is a well-known fact that domestic consumption of gas brings the highest returns and Yemen will be well advised to build this sector as soon as possible.

The participation of the social security and pension fund as a shareholder is a novel idea in the region indeed and something that should be encouraged in all sectors of the oil and gas industry.

The financial needs for social security and pensions in a country of 25 million people must be enormous and cannot be guaranteed by contributions and money in the bank.

Let us all hope that peace and tranquillity are quickly achieved in a country that has so much to accomplish and that the oil and gas industry can further contribute to sustainable development.

The writer is a former head of Energy Studies Department at the Opec Secretariat in Vienna.