By Neeraj Gangal
Militant attacks in Yemen may have knock-on effects for the wider Mideast region.
Militant attacks in Yemen could threaten its small but vital energy operations as well as having potential knock-on effects for the wider oil producing region if insurgents take advantage of the country's instability.
Yemen has come under pressure to act against Al Qaeda since attacks on its two main allies, Saudi Arabia and the United States, by militants coming from Yemeni soil.
Al Qaeda in the Arabian Peninsula (AQAP) has strongholds in Yemen's eastern province of Hadramaut and the towns of Marib and Shabwa, where the oil and gas fields of major international companies are located.
The biggest potential threat would be if insurgents took advantage of Yemen's instability and porous borders to spread operations to Saudi Arabia and beyond.
"AQAP has shown it would certainly attack Saudi Arabia and has threatened attacks on government targets, Western targets and oil supplies as well," Gregory Johnsen, a Yemen scholar at Princeton University, said.
"It would be no surprise if it is looking to retaliate for recent (Yemeni) attacks against it and the question is not if it will do so, but rather when, and what its target would be."
Yemen is an oil producing minnow in a region of export giants such as neighbour and top exporter Saudi Arabia, so interruption of its 300,000 barrels per day (bpd) of oil output would have little impact on international energy markets.
But Yemen relies on oil revenues for 70-75 percent of public revenue and more than 90 percent of export earnings.
Any interruption to that income would put pressure on the budget of an already desperately poor country that says it needs billions of dollars of economic aid.
New gas export income is seen as a potentially important stream of revenue for a country struggling with falling crude exports. A new $5 billion LNG project, Yemen LNG, in Marib is expected to give Yemen revenues of $30 billion to $50 billion over 20 years from 2008.
Production is heavily reliant on private foreign companies, with more than 20 foreign firms operating concessions.
French energy giant Total is perhaps the most exposed foreign operator. It has a 39.6 percent stake in Yemen LNG and U.S. firm Hunt Oil holds a 17.2 percent.
"The situation is getting extremely tight where oil and gas installations are and for companies like Total," said Sara Hassan, security analyst at IHS Global Insight.
The Yemen LNG plant only started output last year, so it would be some time before Total and Hunt recover their investment. Yemen LNG declined to respond to questions on the security risk the company faces.
The main pipeline supplying Yemen LNG is a 320-km line from the Marib production region to the Gulf of Aden port of Balhaf.
The plant started output in October, and Yemen hopes that exports of the chilled gas would help boost economic growth to 8 percent this year.
"Oil and gas pipelines are very attractive targets for terrorist groups," said David Claridge, managing director at London-based risk advisory group Janusian.
"Inevitably, the increase in violence will disrupt gas and oil production. AQAP has regularly stated its intent to conduct attacks against such targets and has conducted a number of successful attacks over the past year."
AQAP made an attempt to blow up a pipeline on Jan. 1, Claridge said.
"Our knowledge of AQAP capacities is far from perfect, but it is a group that appears to be very ambitious and very ingenious in their planning of attacks," Johnsen said. (Reuters)