CAIRO, Jan. 15 (UPI) -- The outlook is encouraging for Yemen to expand its oil exploration and increase its natural gas production in the coming years, despite flagging oil exports and persistent attacks against petroleum companies operating in the country.
Over the past decade, Yemen has suffered from terrorist attacks on foreign interests in the country, with two major attacks against the oil and gas industry.
The country has a lot to lose. Petroleum exports are crucial to Yemen, accounting for 74 percent of government revenue and 33 percent of gross domestic product.
"This vital and important sector has been repeatedly subjected to bombings and sabotage -- acts by outlawed groups, a matter which is negatively reflected on the exploration, production and investment operations in this sector," according to a report by the Yemeni government on the effects of the attacks in the country.
In 2000, the USS Cole was attacked off the port city of Aden, leaving 17 U.S. sailors dead. The attack was followed two years later by a similar bombing of a French oil tanker off the coast of Yemen, which caused a massive fire and the leakage of 150,000 barrels of oil into the Gulf of Aden. In the same year, militants unsuccessfully fired a surface-to-air missile at a U.S. oil company helicopter.
And the violence has not stopped.
In September 2006, four suicide bombers used car bombs to attack two oil facilities in Yemen, but were blown up approaching their targets.
Sanaa is doing something about the threat, however.
"The government has beefed up security around oil facilities. It is also improving ties with neighboring countries on several levels, including sharing intelligence," said A.F. Alhajji, a professor of energy economics at Ohio Northern University and expert on Middle East energy markets. "The attackers on the refinery last September were able to hit their target because they wore military uniforms, an indication that the facility was protected by the Army."
Yemen, with a little more than 21 million people, has a relatively young government. Unified in 1990, and hit by a brief civil war in 1994, tension stemming from struggles for authority remains between the government and tribal groups in the northwest and northeast of the country.
The country's oil and gas sector is relatively immature as well.
Yemen has about 16.9 trillion cubic feet of natural gas reserves, according to the Energy Information Administration, the data arm of the U.S. Department of Energy, making it the eighth-largest reserves in the Middle East. Although negotiations have been ongoing for more than a decade, those reserves are in just the first phases of development, with export agreements only recently signed with foreign energy companies.
Oil production, on the other hand, has been falling over the past three years, from 438,500 barrels a day in 2003, to 387,500 barrels in 2006. This drop is largely attributed to draining oil fields, without sufficient new discoveries to supplement them. But that trend may turn around. In December, the government announced the winners of bidding for onshore exploration and production concessions.
"Yemen is the only country in the region that is very active is offering new blocks to foreign oil companies. Yemen is also unique in that it is allowing a diverse group of companies to invest. ... In the case of Oman or Egypt, the number of foreign oil companies is very limited relative to that in Yemen," Alhajji said.
While Yemen has been active in making onshore blocks available to foreign oil companies, it has yet to tender a significant number of offshore blocks. But in 2007, the government will begin putting forward offshore parcels, a move that could bring Yemen immense rewards.
"A major offshore discovery of oil/natural gas will make Yemen one of the hottest petroleum investment spots in the world. Offshore facilities are usually more secure than those onshore. Such a discovery will lead to the involvement of the major oil companies, which Yemen is lacking right now," Alhajji said.
Further investment may come from close to home. The Gulf Cooperation Council, made up of Bahrain, the United Arab Emirates, Kuwait, Oman, Qatar, and Saudi Arabia, is described by the Yemeni Foreign Ministry as the country's "primary trading partners" and may contribute significantly in the near future.
"The increased cooperation between Yemen and the GCC countries, accompanied by increased liquidity in the Gulf, the decline in the GCC stock markets, and the fear of investing in the U.S. and Europe, GCC investors are likely to invest hundreds of millions of dollars in Yemen's energy sector in the next two years," Alhajji said.
Whether or not Yemen becomes an important oil and gas exporter, and despite internal security problems, it is likely to remain tempting to foreign energy companies simply because of its location.
"Yemen has a very unique advantage over most of the oil producing countries: its oil exports do not have to go through a choke point unless the consumer chose to ship the oil through the Suez Canal. All the oil in from the Gulf has to go through at least one chock point. Therefore, despite the attacks, Yemeni oil is still very attractive," Alhajji said.
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