Global impact of LNG export stoppage seen limited
A surge in attacks on Yemen’s oil and gas infrastructure by tribesmen or al Qaeda militants threatens further disruptions or a complete cut in exports.
With oil exports at a trickle, the Oct. 15 blast on the vulnerable pipeline feeding Yemen’s 6.7 million tonne per year (mtpa) liquefied natural gas (LNG) export terminal is the more significant development for energy markets.
“Further attacks on energy assets in Yemen are likely in the next year, even if these only target pipelines rather than larger complexes,” said Anna Boyd at consultancy Exclusive Analysis.
A source close to the matter said production at Yemen LNG, which is led by French oil company Total , is due to resume at the end of the month after the pipeline was blown up, forcing its operators to declare force majeure.
“The plant is expected to resume production around October 30,” the source told Reuters.
Total’s press office in Paris could not immediately be reached for comment on the restart date or the force majeure — a clause provided in contracts that allows buyers or sellers to renege on commitments due to events beyond their control.
The attacks on oil and gas pipelines over the last few months have severed Yemeni export arteries. The targeting of a sector that accounts for nearly 75 percent of government revenues could have a lasting impact on the poorest Arab country’s ability to export fuels that generate over 90 percent of its foreign currency.
While such assaults have disrupted Yemeni oil exports, which amount to less than 0.5 percent of global supply, several times in the last 10 months, until last week they had not harmed gas supplies since last year.
Repairs have begun to the 320-km-long gas feedline. But protecting it in a sparsely-populated, mountainous and increasingly lawless country is difficult, leaving it highly exposed to further attacks.
“The export plant has robust security around it but the pipeline is more vulnerable,” said Lucy Jones, a Middle East analyst at Control Risks in London.
Analysts at Eurasia Group said in a note on Wednesday that a prolonged closure of Yemen LNG could reduce the amount of flexible volumes available on the global LNG market, especially if South Korea’s Kogas , one of three long term buyers of Yemeni LNG, has to buy more from the spot market.
But traders said Kogas shows little interest in buying much more gas over the next two months as it has already topped up inventories for winter, with the closure of the plant likely to take only about two LNG cargoes a week out of a global market.
“Korean inventories are high and there is no real LNG buying for November and December, the market is softening so this might be the best time for a Yemeni stoppage,” one LNG trader said.
Yemen LNG also delivers gas under long-term contracts to Total and to GDF Suez , but appetite for gas in their home countries is weakened by slow economic growth.
“Yemen’s not a big player in Europe and its LNG clients in Europe will easily be able to make up for their supplies,” one gas trader said.
Yemen LNG had been planning to shut for annual maintenance from Oct. 23 and started work early to minimise the impact of the pipeline outage on exports.
There have also been three blasts on the pipeline supplying the Ras Isa oil export terminal over the last two weeks alone.
Yemeni oil exports could stop again within days, as a result, once oil stored at the facility in the Red Sea is loaded.
“Oil flow (to Ras Isa) has stopped, bit by bit after every explosion,” a shipping source based in Yemen said on Thursday.
“There are only 400,000 barrels of oil on board in the tanks kept for export order.”