Prospects look good for Yemeni natural gas exports, reports Peter Willems from Sanaa It's an ideal time to be an oil producing country. Crude oil prices have soared and have reached record highs in the past year. On a daily basis, Yemen produces roughly 450,000 barrels of oil. Although reserves are nothing compared to those of its Gulf neighbours, over 70 per cent of the Yemeni government's revenue and around 70 per cent of the country's export revenue comes from oil. With prices this high, Yemen should be content. However, "black gold" does not last forever. According to The World Bank representative in Sanaa, the Yemeni capital, oil production has levelled-off, heading towards a steady decline over the next decade with reserves starting to dry up. There is little hope that a significant amount of oil is left to be found, thus forcing Yemen to explore other methods of expanding its economy. With an estimated reserve of 16 trillion cubic feet of natural gas, this would appear to be Yemen's viable solution. However, there remains a significant obstacle. Yemen LNG, the company awarded the Natural Gas exploration and exploitation contract, has yet to find a buyer. "At the beginning of 1997, Yemen LNG was ready to find a market" said Jean-François Daganaud, General Manager of Yemen LNG. Having particularly targeted the booming economies of Japan, South Korea and Taiwan -- all who lacked natural resources of their own -- Yemen seemed set to begin production. Yet Asia was to suffer an economic meltdown. As Daganaud noted, "the Asian crisis reduced Yemen's chances considerably." Now, with Daganaud announcing that "the international gas market has become the most favorable since we first started the project in 1995," Yemen may again find a market, possibly even by the end of this year. Government-owned Korea Gas has sent invitations to nine countries to bid for gas projects and is expected to finalise agreements with multiple suppliers in December. With Yemen LNG's bid this month for a contract, it believes it has several advantages over competitors. Two South Korean companies, SK Corp -- which is the largest oil refiner in South Korea -- and Hyundai, have a 16 per cent stake in Yemen LNG. The Yemen gas company believes that South Korean partners should give it an edge as far as doing business in the Asian market is concerned. "South Korea is a very important market," said director general of the Gas Division of Yemen's Ministry of Oil and Minerals, Taha Al-Ahdal. "The two Korean shareholders in Yemen LNG are big companies in Korea. It would be a good way to enter Korea with their help." Another Yemen LNG strategy is to offer buyers investment and equity rights in the company. Outside of South Korea, Yemen is also optimistic of capturing other markets. The United States has previously depended on importing natural gas from Canada to supplement its own reserves. Yet this is not sufficient to meet future consumption projections forcing the US to import from overseas. Daganaud believes that since many suppliers of natural gas to the US are already committed to projects, Yemen LNG has a good chance of hooking up with the US market. "Our delivery time, which can be done in 2008 or 2009, is a big advantage to going after the US market. There are no delivery locations closer than Yemen. Other suppliers, like Egypt and other gas-exporting countries in North Africa, have their export markets in Europe, and so we may be the most suitable supplier of gas to the US." Talks between Yemen and the US are already underway and a deal may be concluded as early as December. Furthermore, once there is a customer for Yemeni natural gas, Yemen LNG will build a 320km pipeline that will carry gas from Marib to Bal Haf, a site on the coast west of Mukalla, where a liquefaction plant will be built. Shareholders of Yemen LNG (France's Total, state-owned Yemen Gas, US Hunt Oil, and South Korea's SK and Hyundai) will pump $2 billion into the project if there is a buyer. Despite these apparent advantages, a smooth road does not lie ahead. "In 1997, suppliers of gas were masters of the market," said Al-Ahdal. "But after the Asian crisis, demand has dropped and more suppliers have emerged. Suppliers now outweigh the demand for gas." Yemen also faces tough competition in the Arab region. It is believed that Qatar has over 50 times the amount of gas in Yemen and Qatar's reserves are under the sea thus providing easy access. In addition, Yemen's Gulf neighbour has already been a producer of gas for 10 years. Daganaud said Yemen LNG's marketing is based on numerous advantages for potential customers if they decide to buy. Notably, Yemen has proven to be a stable supplier. Since oil was first produced in 1986, there have been no interruptions of delivery, whereas countries shipping out of the Persian Gulf are operating in a volatile area. Yemen can also compete on prices. Since gas has already been extracted in the Marib region, no investments will be required for exploration. For the future, with the Asian economies picking up, Yemen LNG sees more opportunities on the horizon. "Asian countries have recovered from the crisis, and gas consumption is increasing again," said Daganaud. "There is now high energy demand in China which affects the whole Far East. Demand for natural gas in Asian countries is on the rise. And, there will be a strain on supply with stiff competition for natural gas in the Asian energy market." With the climate of the international natural gas market changing for the better, Yemen's long wait to find a buyer might finally pay off. "This change in the gas market has given new opportunities to Yemen LNG," stressed Daganaud.
