The oil and gas industry is well aware of problems taking place in Yemen, where oil production is on a steady decline. However, the hopeful Arab country is now looking to boost revenues through LNG.
"Our production is now reaching the maximum and we look forward to achieving the objective of production in 2010 of the budget," said Francois Rafin, general manager of Yemen LNG, in a speech at the inauguration of its second train.
Total SA, with 39.62% interest, is the main stakeholder in Yemen LNG. Its partners are Yemen Gas Co. 16.73%, Hunt Oil Co. 17.22%, SK Energy 9.55%, Korea Gas Corp. 6%, Hyundai Corp. 5.88%, and General Authority for Social Security and Pensions 5%.
Rafin's statement will come as welcome news to the Yemeni government, which hopes that its LNG exports will offset the impact of rapidly falling oil output on state revenues and boost the country's economic growth.
Target cut
Recent reports say, in fact, that Yemen has cut its oil production target for 2010 as it becomes increasingly difficult to tap some of its mature fields, with output now expected to reach 280,000-300,000 b/d.
That's bad news for a country that depends on oil income for 75% of public revenue and more than 90% of export earnings. And the news is not expected to get much better when it comes to Yemen's oil production.
"We have some difficulties really with some blocks. Some of the companies are working in old structures and there is a natural decline of production in the oil fields," said Oil Minister Amir al-Aidarous.
The minister cited one main example on the country's Masila block, which he said now produces 73,000 b/d vs. 230,000 b/d in 2003. That's a drop in production of about 72%—massive by any calculation.
Nexen Inc., which holds a 52% stake in the block, agrees that "the Masila fields are mature and the [production-sharing agreement] expires at the end of 2011," but it insists that "significant value still remains."
Growth to double
That may be, but according to the World Bank's Yemen Quarterly Economic Review for Spring 2010, the country's overall growth is forecast to double to 7.8% of gross domestic product, largely reflecting the coming on stream of the new LNG plant.
The Yemen LNG plant was inaugurated in November 2009 with a first shipment of 1.49 million cu m of LNG, and the ministry of finance expects to earn $233 million in revenues this year from the LNG and gas exports.
Once production capacity reaches its targets (two production trains equal 6.7 million tpy) during 2010, the annual revenue flow is expected to amount to about $370 million.
Still, as cost recovery by the companies will weigh in to compensate for the initial investment, there's going to be an economic pinch as government net revenues from LNG sales will not reach their full level for the first 6-7 years.
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