Yemen is important to the global oil trade because of its location on the Bab al Mandab, one of the world’s most strategic shipping lanes, through which an estimated 3.2 million barrels of oil passed daily in 2009. Disruption to shipping in the Bab el-Mandab could prevent tankers in the Persian Gulf and the Gulf of Aden from reaching the Suez Canal/Sumed pipeline complex, requiring a costly diversion around the southern tip of Africa to reach western markets. In recent years, this region has seen rising piracy off the northern Somali coast in the Gulf of Aden and southern Red Sea including the Bab el-Mandab.
Yemen’s economy is heavily dependent on hydrocarbons, which account for 30 percent of GDP, nearly 75 percent of government revenues, and over 90 percent of foreign exchange earnings. Yemen is actively seeking to increase foreign investment in its energy sector as declining oil revenues are weakening the government’s ability to provide basic services. Earnings from its LNG exports are projected to provide a partial offset of Yemen’s falling oil export revenues in 2011, when Yemen’s LNG project reaches full capacity.
Yemen seeks to attract more foreign investment to boost exploration efforts and reverse its declining crude oil production.
According to Oil and Gas Journal, Yemen had proven crude oil reserves of 3 billion barrels as of January 1, 2011. Yemen’s oil reserves and production are located in 5 main areas: Jannah and Iyad in central Yemen, Marib-Jawf in the north, and Shabwa and Masila in the south. Masila’s Block 18 is ranked as holding the country’s highest reserves at approximately 84 percent of the total, according to Yemen’s Petroleum Exploration and Production Authority.
Yemen’s General Corporation for Oil, Gas and Mineral Resources, is a loose affiliation of several state-owned subsidiaries including: Yemen Oil Company; Yemen Refining Company; Petroleum Exploration and Production Authority; Yemen Gas Company; Oil Products Distribution Company, and the General Department of Crude Oil Marketing. The company is responsible for managing industry contracts and relations with operators and partners, as well as the government’s share of crude exports. All branches report to the Ministry of Oil and Mineral Resources, which is responsible for oil policy, however contracts with foreign oil companies require parliamentary approval.
The oil sector is open to private company investment on a production-sharing basis with Yemen Oil Company (YOC). Safer Exploration and Production Operating Company (SEPOC), Yemen’s leading national oil company, was formed in 2005 to take over Marib Block 18 when Hunt Oil and ExxonMobil’s license expired and the parliament vetoed its extension. It is the largest producer of gas and the second largest producer of oil in the country.
According to the Yemen Times, in October 2010, the Yemeni government drafted a new law to enable SEPOC to receive oil assets and facilities released from international corporations when their contracts expire, operating these assets on behalf of the Ministry.
Production and Exploration
In 2010, Yemen’s total oil production was about 260,000 barrels per day (bbl/d), down from 286,000 bbl/d estimated for 2009. Production has been declining steadily since reaching a peak of 440,000 bbl/d in 2001. EIA estimates oil output will decrease further to 250,000 bbl/d in 2011 and 2012.
All oil production currently comes from 2 main sedimentary basins, Marib/Shabwah and Say’un/Masila. There are currently 12 producing blocks within these 2 basins, operated by 9 international oil companies. There are 31 blocks currently under exploration by international oil companies in partnership with Yemen Oil Company.
Recent exploration activity has focused on the area bordering Saudi Arabia, but additions from this region have been relatively small. Despite interest from a large number of companies during an initial licensing round in late 2007, security fears and the escalation of piracy in the Gulf of Aden in 2008 and 2009 derailed exploration of Yemen’s offshore areas. However, in June 2010, there was a tender for five exploration blocks; the three companies chosen were Total, Austria’s OMV, and Norway’s DNO. And, according to the Yemen Times, 17 bids for three offshore and seven onshore oil exploration blocks were received from international oil companies during Yemen’s Third Oil, Gas and Minerals conference in October 2010.
Consumption and Exports
Yemen had net exports of 125,500 bbl/d of crude oil and total domestic consumption of 161,000 bbl/d in 2009. As domestic oil consumption rises, net exports are falling along with production. Net oil exports were 150,700 bbl/d in 2008. Yemen’s net imports of refined oil products in 2007, the most recent data available, were estimated at 43,000 bbl/d, mainly distillate and residual oils. Asian countries account for the majority of Yemen’s oil exports.
Export Pipelines and Terminals
Yemen has an integrated network of pipelines that transport crude oil from 3 central production units, which separate gas, crude, water, and salt from the oil, and connect to 4 longer pipelines that transport the oil to the export terminals. These include the 270-mile Marib-Ras Isa pipeline, which transports oil from the Marib basin to the Ras Isa offshore export terminal in the Red Sea and has a capacity of 400,000 bbl/d; the 90-mile Masila-Ash Shahir pipeline runs from Masila to the export terminal at Ash Shahir on the Gulf of Aden and has a capacity of 300,000 bbl/d; the 130-mile Shabwa-Bir Ali pipeline runs from from the Ayad-Shabwa block to the Bir Ali terminal on the Gulf of Aden and has a capacity of 135,000 bbl/d. The total length of oil pipelines in the country is estimated at 662 miles.
Yemen has 5 main oil export terminals in operation: Aden port handles refined products exported onto vessels up to 110,000 deadweight tons (dwt); Ras Isa is the main crude export terminal, located offshore in the Red Sea; Hodeidah on the Red Sea handles small tankers up to 15,000 dwt; Bir Ali exports crude from the Shabwa region; Ash Shihr (also known as Al Mukallah) is operated by Nexen and ships oil coming from the Masila oilfield onto tankers of between 80,000 and 400,000 dwt.
According to the January 2011 Oil and Gas Journal, Yemen has a total crude oil refining capacity of 140,000 bbl/d from two aging refineries: the 130,000 bbl/d Aden refinery built in 1954 and operated by Aden Refinery Company (ARC), and the 10,000 bbl/d Marib refinery built in 1986 and operated by the Yemen Refinery Company. In January 2011, it was reported that the Chinese and Yemeni governments are in discussions about a concessionary loan to finance the modernization of the Aden refinery. Chinese oil companies could also be involved in securing the feedstock supply for the facility, which has repeatedly encountered operational problems due to feedstock shortages. Although the refinery has a nameplate capacity of 130,000 bbl/d, it reportedly has a usual throughput volume of about 90,000 bbl/d. China’s Ministry of Commerce said that Yemen is planning a US$1.5 billion renovation project.
Planned new refineries at Mukallah and Ras Isa, to be backed by Saudi Arabia and the International Finance Corp., respectively, have been delayed for a number of years due to rising construction costs and the decline in oil feedstocks.
Yemen began exporting LNG in November 2009. Development of its natural gas resources is expected to increase.
According to the Oil and Gas Journal, as of January 1, 2011, Yemen has 16.9 trillion cubic feet (Tcf) of proven natural gas reserves. Most of Yemen’s natural gas reserves are associated gas concentrated in the Marib-Jawf fields, which contain 10 Tcf of proved reserves according to Yemen LNG. Success in developing the liquefied natural gas (LNG) sector is likely to increase interest in further natural gas exploration and production.
Yemen produced an estimated gross 509 billion cubic feet (Bcf) of natural gas in 2009, of which 441 Bcf was reinjected to provide enhanced oil recovery, 18 Bcf was vented and flared, and 50 Bcf was marketed, of which only 4 Bcf was used domestically to fuel electric power generation, which is predominantly reliant on oil. Natural gas production began in Yemen in 1993, reached a peak of 727 Bcf in 2005, and then began a declining trend. However, the startup of the Balhaf LNG facility at the end of 2009 was the beginning of a sustained rise in Yemen’s natural gas production.
The Yemeni government’s plans for increased domestic use of new natural gas reserves include the transition of power generation from diesel fuel oil to natural gas fuels. Reportedly, all new production sharing agreements (PSA) with foreign companies now include a clause that mandates contractors to invest in Yemen’s natural gas infrastructure. The new PSAs mark Yemen’s recent shift to natural gas.
Liquefied Natural Gas (LNG)
According to Cedigaz, Yemen exported a total of 15 Bcf of LNG in 2009, following the opening of its first LNG plant at the port of Balhaf on the Gulf of Aden at the beginning of November 2009. The Balhaf LNG processing plant, operated by Total, added a second train in April 2010, which increased total capacity to 326 Bcf/year. Earnings from its LNG exports are projected to provide a partial offset of Yemen’s falling oil export revenues in 2011, when Yemen’s LNG project reaches full capacity.
A long-term LNG sales contract with Korea Gas Corporation, signed in 2005, provided both the impetus and the investment needed to begin developing Yemen’s natural gas reserves for the export market. Yemen also signed 20-year contracts with GDF Suez Company and lead developer, Total. Yemen LNG is the company developing Balhaf; Total holds a 39.6 percent stake in the project, followed by Hunt Oil, which holds 17.2 percent, Yemen Gas Company at 16.7 percent, and 3 South Korean companies – SK Gas at 9.55 percent, Korea Gas at 6 percent, Hyundai at 5.88 percent. Local Yemeni investors make up the balance.
The Balhaf LNG terminal receives natural gas from Block 18 in the MaribBasin via a 200-mile, 900,000 cubic feet per day capacity pipeline. Block 18 is operated by the Yemeni government, which has earmarked10.2 Tcf of gas reserves for the LNG project.