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Yemen’s collapse as an energy producer

Conflict and unrest has hit the country’s oil output by more than 90% in just six years

Yemen is close to falling off the bottom of the list of global oil producers, with output declining from 424,000 barrels a day in 2004 to something close to 20,000 b/d today – the war and the collapse of state institutions mean that detailed figures are unavailable. A day when the country climbs back up that list seems distant, with no prospect of an early end to the conflict. The war has also halted Yemen’s liquefied natural gas-export industry, but the processing and export facilities at Balhaf on the Gulf of Aden coast are undamaged.

A barrage of damaging blows has struck Yemen’s energy sector over recent years: a breakdown of law and order when the Arab Spring erupted in 2011; the war resulting from the subsequent Houthi insurgency and the Saudi-led military response; and the collapse of global oil prices. But even before all these events, the picture did not look promising. In less than a decade up to 2012 production halved (see Table). Since then it has been in free fall, with oil installations and pipelines coming under attack and oilfields being abandoned because of threats to the safety of personnel.

Yeme's oil production

 


Faced with the need to cut costs across the board, international oil companies with interests in Yemen are, not surprisingly, assessing the possibility of disposing of assets there. DNO, the operator of Blocks 32 and 43, suspended work in the country in early 2015 and sees little hope of an early resumption of production. Kuwait Energy withdrew from Block 43 in June 2015.

Occidental Petroleum (Oxy) chief executive Vicki Hollub said in early February that “we’re reducing our exposure in the one area that we currently have and expect to exit that by mid-year”. Oxy has interests in Block 10 in the Masila Basin, and was the operator of Block S-1 (An Nagyah field) in the Marib-Shabwah basin. That was bought in February by Australia’s Petsec Energy – one company betting on a more promising future for Yemen.

Sector spillover

The collapse of Yemen’s energy sector has contributed to hardships afflicting its 14.4 million inhabitants, with a severe shortage of oil products being compounded by damage caused to pipelines and other distribution facilities by air strikes and sabotage. The Aden oil refinery was shut down in April 2015 when the Houthis took control of the city. In October the same year, with government forces back in control, one of the refinery’s two 75,000 b/d crude distillation units was restarted, processing stored crude oil. But since then, with the previous supply of Marib crude cut by the fighting, the facility has been operating only as a distribution centre for imported crude oil products.

Until peace is restored, the future of Yemen’s energy sector, as much as the integrity of the country as a whole, will remain precarious

The prospects for Total-led Yemen LNG, with its 6.7m-tonnes-a-year plant at Balhaf, look more positive if and when the country’s conflict ends. Total has said that the Balhaf complex, which was shut down in April 2015, has not been directly affected by the fighting. According to the company’s chief financial officer, Patrick de la Chevardière, speaking in late-2015, “the installations are secured and technically ready to restart if we were in a position to restart it”. Even if LNG exports were resumed, uncertainty would hang over the regular supply of gas feedstock through a 320km pipeline from Marib Block 18, which runs through territory controlled now by al-Qaida. 

Until peace is restored, the future of Yemen’s energy sector will remain precarious. An early breakthrough seems unlikely in a war that neither side looks able to win or lose. The longer that peace remains elusive, the less likely it is that Yemen will again be able to contribute significantly to the supply of global energy.

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