OilVoice - Terrorist Attack Highlights Risks Of Yemen's Oil Industry

Terrorist Attack Highlights Risks Of Yemen's Oil Industry

Thursday, January 07, 2010

Yemen's oil industry is set to suffer as a result of the Christmas Day attacks by a Yemen-trained terrorist attempting to blow up an airliner in the US. While a failure, the attempt served to highlight the risks posed to Western oil explorers and producers who are seeking to operate in, and perhaps stem, the decline of the nation's oil industry.

At present, the Yemeni oil sector accounts for 65-75% of fiscal revenues and 80-90% of total goods exports in recent years. Worryingly for the national government, output is expected to drop to around 250,000 barrels per day (bpd) by 2014. However, this isn't a new trend by any means. In fact, the country's oil output has been declining for several years, falling to 287,000 bpd in the middle of last year after peaking at 457,000 bpd back in 2002. In an attempt to buck the trend back in February 2008, Yemen's former oil minister Khaled Bahah said that the country was aiming to increase oil production to 500,000 bpd by 2010. This target now seems unrealistic.

In addition, the investment risks in Yemen are seemingly increasing by the day. France's Total is one of the main operators in the region but it is unlikely to pull out any time soon owing to its sunk investments in the country. However, the current state of affairs is unlikely to tempt other industry majors to enter the country.

Meanwhile, independent companies operating in Yemen are facing potentially deterring security overheads. Early entrants into the sector, including: Norway's DNO and US-based Hunt Oil are continuing operations, but have large investment commitments (particularly on exploration) are unforthcoming.

Interestingly, Yemen is in a position of important geopolitical significance. It is the site of Bab el-Mandab, which is one of what the US Government lists as seven strategic world oil shipping chokepoints. In addition to its geopolitical position as a major global oil transit chokepoint, Yemen is believed to be sitting on some of the world's greatest untapped oil reserves. In particular, the Masila Basin and Shabwa Basin are listed as sites containing potentially lucrative discoveries. No doubt such reports would have been the motivation for Total's entrance into Yemen's developing oil arena in the first place.