Security fears crippling Yemen’s upstream oil and gas industry

The continuing deterioration of security conditions in Yemen has led to several international oil companies withdrawing from their operations in the country, with a once-significant source of global supply being reduced to marginal volumes, says an analyst with research and consulting firm GlobalData.

Oil production forecast to fall

Oil production in Yemen peaked at 441 000 bpd in 2001, but this decreased to 125 000 bpd in 2014 and is forecast to fall to as low as 30 000 bpd in 2015. According to Ali Al-Killidar, GlobalData's Analyst covering Oil & Gas, production was completely offline for long periods in previous years as a result of frequent attacks on the country’s oil and gas facilities and strike action by oil field personnel.

Al-Killidar explains: “In 2014, a coalition of tribes took control of the country’s main checkpoints and refused oil companies access to their fields, significantly impacting operations in Hadramawt, an eastern province which contributed to more than half the country’s oil production.”

Yemen’s government has recently reported losses from the attacks exceeding US$4 billion in the past three years. A total of 34 oil and gas firms have left Yemen in recent years and it is likely that local inexperienced operators will be left to manage what remains of the oil industry.

Damage to infrastructure

The damage caused to Yemen’s oil and gas infrastructure and industry reputation will take at least five years to return to pre-conflict levels, with production first expected to arrive from fields with the largest remaining reserves in 2019.

Al-Killidar continues: “As of August 2015, of the 13 producing blocks, only the Jannah and Damis blocks were known to be producing. Yemen LNG came online in 2009, and while the country contributed 330 billion cubic ft in 2013, Yemen’s gas infrastructure has been subject to persistent attacks.

“Production became untenable in April 2015, a month after Saudi Arabia started its bombing campaign, when the plant’s operations came to a complete halt after Yemen LNG declared force majeure.”

GlobalData states that the international oil companies that have pulled out of their operations in Yemen include Total, DNO, Calvalley Petroleum, and CNOOC. “A controlled security situation is looking increasingly less likely to happen any time soon, as Houthis continue to increase controlled territory from the northwest and Al-Qaeda, who recently captured the Al-Shihr oil terminal, are advancing from the southeast,” the analyst concludes.

Adapted from a press release by Louise Mulhall

Published on 02/10/2015

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