Dubai — Yemen has announced plans to generate 32% of revenues from oil and natural gas this year in its first detailed budget since 2014. But analysts are skeptical about the country's goal of enticing more foreign investors to help boost exports and generate vital cash needed for the Middle East's poorest and war-torn country.
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Oil exports have been slashed since 2015 when the civil war began, and total output is estimated at about 50,000 b/d - a drop of two-thirds in less than four years. Natural gas shipments are at zero, after the country declared force majeure on the 6.7 million mt/y Balhaf LNG export plant in 2015. Any return of Yemen to LNG exports could disrupt the spot market.
Yemen is caught in a war that has left its 28 million people struggling to survive in what the United Nations calls the worst man-made humanitarian disaster. But that hasn't stopped the government from projecting new investment in energy this year, helping ports and airports to run more smoothly and swelling state coffers. Austria's OMV is the only international oil major active in the country, having restarted production in April.
"I doubt many additional oil majors will be interested in Yemen," Graham Griffiths, security analyst at Control Risks in Dubai, told Platts. "There were few blocks operating productively and without issues before the conflict, and a number of companies have sold their assets or indicated a limited interest in returning."
The government's budget approved by the council of ministers in February estimated 2019 revenues at 2.159 trillion rials ($8.629 billion), and spending at 3.11 trillion rials.
Local press has reported that Yemen's government is hoping to restart exports from the Yemen LNG Balhaf plant this year. A restart would face security and political challenges since the facility falls under the control of multiple local governments and security forces that have uneasy relations with the internationally recognized government, analysts said.
"Aside from this, it's essential that oil exports are restarted in order for gas to reach levels that are sufficient to be liquefied," Liam Yates, Middle East analyst at Wood Mackenzie in Edinburgh, said in an interview. Gas is flowing through a pipeline from the main resource known as block 18 but not at levels that can be exported, he said.
Oil-producing regions are in the central Marib and Shabwa basins, and the facility where oil is exported - Ras Issa - is government-controlled.
"The [Yemen state-owned] PetroMasila operations have been going for some time now, and I think they're producing 50,000 barrels a day," Yates said. "That's been successful in the east but if they want to get international investors back, clearly the security situation is still not ideal for many."
Several parts of Yemen continue to suffer from insurgence that is often violent, though the independent organization, Yemen Data Project, reported a 15% drop in Saudi/UAE-led coalition air raids across the country in January 2019, following a 21% reduction in December. The Yemen war is often described as a proxy war because the government fighting is backed by Saudi Arabia and the UAE, while Iran is supporting the Houthis on the other side.
UAE-backed forces in Shabwa and Hadramout have had some success in combating al Qaeda insurgents, but there is still a threat that violence could restart, even among local tribe groups or rival security forces. Yemen Data Project reported that a bombing was carried out in Shabwa province in January for the first time in over a year. Getting OMV back into the country has been a positive step for Yemen. But given the country's track record of security issues, even before the war began, it could take more than the promise of reserves to lure back investors.
"Oil and gas companies need to know that their assets and personnel will be secure and that they'll get paid," Griffiths said. "Moreover, they need to know who their political stakeholders are and who they need to work with in order to operate."
-- Miriam Malek, firstname.lastname@example.org
-- Edited by Claudia Carpenter, email@example.com