Yemeni oil production is waning

zoom

In 2002 the French supertanker Limburg was attacked off the coast of the south eastern Yemeni port of al-Mukalla, 700km east of Aden. (AFP/Getty Images)

zoom

Yemen’s biggest oil refinery is in the southern Red Sea port of Aden.

A key problem for Yemen, one of the world's poorer countries, with a population of over 22 million people, is that oil production is beginning to wane, and there are few immediate signs that the trend can be decisively reversed.

Last year the value of oil exports rose by 13.1% to US $6.7 billion, equivalent to 91% of the country's total exports. This increase, however, was achieved at a time when international oil prices, as measured by the OPEC basket, actually climbed 21.4%. In other words, although oil earnings went up, the volume of Yemeni crude shipped actually fell. Things are about to get tougher. Many analysts believe 2006 will prove to have been a peak year for oil prices, with a moderate decline setting in over the following two to three years. With both falling volume and prices, Yemen could therefore take a significant revenue hit.

In fact, the early signs are already there. According to recently released figures, in the first four months of this year the value of total crude exports fell 45% to US $789 million, down from US $1.44 billion in 2006.

Driving this process is the steady depletion of reserves at the large Masila and Marib fields. Total production fell to around 350000 barrels per day (bpd) in the first quarter of 2007, compared to 413000 bpd for much of last year. Investment is going into the development of new fields but the likely output gains will not come quickly enough to offset the fall from the older fields. Although there is talk of reversing the trend, the government's own Development Plan for Poverty Reduction (DPPR) for the 2006-10 period acknowledges that oil output is likely to decline by around 27% between 2006 and 2010.

Oil and gas development continues to be encouraged, however. In May oil minister Khaled Mahfoudh Bahah said 10 offshore exploration blocks in the Gulf of Aden and the Red Sea would be put out to tender during the third quarter, and that Occidental of the US, Nexen of Canada, and Statoil of Norway were among international companies expressing interest. Officials are hoping that the auction could raise as much as US $600 million worth of investment. Bahah said that of 40 blocks already open to development, only 12 were producing. He estimated that new discoveries in untapped areas might yield another 150000 bpd of new production within the next five years. The minister is also looking at various projects to build new refineries in the country, reducing its dependence on the single existing 140000 bpd facility at Aden.

Yemeni President Ali Abdullah Saleh for his part has underlined his government's commitment to attracting new foreign investment. In April he stressed his desire to encourage local, Arab, and foreign investment, saying that ‘we are willing to re-evaluate all laws concerning investment, banking, taxes, customs and others to remove anything that would obstruct investment'.

Prospects for gas could be significant. The new development here is the US $3.7 billion Yemen LNG project, which is expected to begin production of 6.7 million tonnes per annum (tpa) of LNG from 2008. Two thirds of that will be shipped to the US, and one third to South Korea. The development consortium includes Total of France, Yemen Gas, and a group of South Korean companies including SK Corp, KOGAS, and Hyundai. The first LNG shipment is expected to leave the Arabian Sea port of Balhaf by the end of 2008.

Total, which apart from the LNG project is also exploring new crude discoveries in Block 10, is now the largest foreign investor in Yemen. General manager Jean-Michel Lavergne said earlier this year that ‘between 2006 and 2009 we will invest between US $1 billion and US $2 billion. We are drilling over 20 wells in Block 10 in 2007 and will start raising production at the end of 2008. Output will reach over 50000 bpd'.

Lean years

Whichever way you look at it, however, it is likely that oil and gas, which drives roughly 75% of the local economy, is heading for some lean years. To put this in context it is worth looking a little more widely at the country. Paradoxically, perhaps, Yemen is one of the poorest and most tribal societies in the region, but also, one that in relative terms is still among the more open and democratic.

Print | Email | Discuss this article |

READERS' COMMENTS

View all comments (0)

Have your say

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Security Code *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM