Although Yemen is not a major hydrocarbon producer relative to several other countries in the Middle East, the country has sufficient oil and natural gas resources for both domestic demand and exports. However, Yemen's difficult security environment hinders the production and transport of those resources.

Yemen's energy sector is in a state of flux. Declining oil production and frequent attacks on Yemen's energy infrastructure have offset positive developments in the country's natural gas sector since 2009. Yemen's difficult security environment complicates the exploration, production, and transport of energy resources in the country, and could undermine the country's emerging liquefied natural gas (LNG) export sector.

Yemen is not a major energy producer or exporter compared with other countries in the Middle East. However, the country's location at the Bab el-Mandab, a key chokepoint in international shipping, makes Yemen important in terms of international energy trade. More than 3.4 million barrels of oil per day (bbl/d) passed through Bab el-Mandab in 2013. Closure of the two-mile strait would force tankers to sail around the southern tip of Africa to reach European, North American, and South American markets.

Yemen's government depends on the country's hydrocarbons sector. Even with the earnings from natural gas exports, the International Monetary Fund (IMF) estimates that Yemen needs an oil export price of approximately $215 per barrel to balance its budget. IMF figures also show that 63% of government revenues came from the hydrocarbons sector between 2010-12, and that hydrocarbons accounted for 89% of total export revenues. Yemen, as a member of the Extractive Industries Transparency Initiative (EITI), reported in July 2013 that government revenues from the oil and natural gas sector in 2011 were more than $5 billion.

Oil production in Yemen declined steadily after peaking in 2001, but beginning in 2009, the country began producing commercial quantities of natural gas for domestic use and for exports as LNG. This development could help the country stabilize its economy even without an extremely high oil export price. However, replacing oil export revenues with LNG export revenues does not reduce the country's dependence on its hydrocarbons sector.

Oil

Yemen's oil production has decreased significantly since peaking in 2001 because of natural decline in the country's aging fields and frequent attacks on its oil infrastructure.

According to the Oil & Gas Journal, Yemen had proved reserves of oil totaling 3 billion barrels as of January 2014. Yemen has two primary crude streams, the light and sweet Marib stream and the medium-gravity and more sulfur-rich Masila stream. According to the government, the southeast Masila Basin holds more than 80% of the country's total reserves.

The combination of declining production in its mature fields and frequent attacks on its energy infrastructure has left Yemen's oil sector in poor shape. In 2013, there were at least 10 attacks on Yemen's oil and natural gas pipeline system, and some industry sources estimate closer to 24 attacks. In 2012, there were more than 15 attacks, and oil exports were completely offline for most of the first half of the year.

Securing the country's pipelines and other critical energy infrastructure is a stated goal of Yemen's current President, but the efforts have not been entirely successful to date. The security situation has led several smaller international oil companies to suspend operations.

The country continues to hold bidding rounds for exploration blocks that may hold additional oil resources in both offshore and onshore areas. There are contradicting reports of Yemen's additional oil resources. Even if additional resources exist in the country, the current security environment restricts the ability of companies to produce and transport oil.

Exploration and production

Yemen's oil production declined after 2001 as a result of the country's maturing fields, and attacks on the country's oil infrastructure since 2011 have led to significant short-term disruptions.

Yemen began producing crude oil in 1986 at very low levels and gradually increased production throughout 1987. The country's first significant production came in 1988, when it produced 173,000 barrels per day (bbl/d). Yemen's average monthly crude oil production declined after 2001, when production peaked at more than 440,000 bbl/d. Yemen had plans to boost production to 500,000 bbl/d, but declining production at its maturing fields, limited exploration, and frequent attacks on the country's energy infrastructure make that goal infeasible. The U.S. Energy Information Administration estimates that Yemen's crude oil production was about 100,000 bbl/d in March 2014.

Most of Yemen's production is from the Marib-Jawf area in central Yemen and near the Masila area in the east, with production coming from just 13 of the country's 105 exploration blocks. Since 2001, the country's most productive field has been the Tawila field, which averaged nearly 90,000 bbl/d in 2003 but has since declined along with many of the country's other large fields.

Natural decline rates at many of Yemen's major fields—including Tawila—account for the country's generally falling production, but the frequent attacks on the country's energy infrastructure since 2011 have caused much sharper declines in recent years. Other factors contributing to lower production include strikes—Norway's DNO had to cease all production in June 2014 because staff protested that the company failed to fulfill its obligations.

Exports, imports, and consumption

Attacks on Yemen's key oil infrastructure continue to curtail both domestic petroleum consumption and exports.

With the continued decline in oil production since the early 2000s, Yemen has struggled to keep its export sector at normal operating levels. The pipeline, which runs from the Marib region in the center of the country to the export terminal at Ras Isa, is critical to Yemen's export operations. As such, it is one of the most frequent targets of sabotage.

Yemen does not have any overland pipeline connections to its neighbors, so all of the country's petroleum exports depart via tanker vessels. In recent years, more than three-fourths of their petroleum exports went to destinations in Asia. In 2013, Yemen exported just 124,000 bbl/d of crude oil, according to data from Lloyd's List Intelligence tanker tracking service. Exports are down from more than 350,000 bbl/d 10 years earlier. In addition to crude oil exports, Yemen exports limited amounts of refined petroleum products, averaging just 16,000 bbl/d of refined product exports in 2013, according to data from Global Trade Information Services' Global Trade Atlas.

Yemen regularly imports petroleum products, particularly distillate fuel oil and residual fuel oil. Between 2000 and 2013, Yemen's imports of all petroleum products grew from just 2,000 bbl/d to 78,000 bbl/d, based on data from FACTS Global Energy. The possibility of continuing attacks on its energy infrastructure and further production declines means Yemen's reliance on imported petroleum products will likely increase in the short term.

Yemen's oil consumption has been trending steadily upward, reaching 144,000 bbl/d in 2013. The country has two operating refineries with a total capacity of 140,000 bbl/d. While these refineries produce some of the petroleum products Yemen needs, the refineries do not operate at full capacity, and the country imports additional petroleum products to help meet internal demand. The Aden Refinery is the largest in the country, accounting for almost all of Yemen's total refining capacity of 140,000 bbl/d.

Natural gas

Until recently, Yemen reinjected most of its natural gas production to aid in oil recovery. However, since 2009 the country has been an LNG exporter, and the government aims to increase the use of natural gas in many sectors, including in electricity generation.

As of January 2014, Yemen held 16.9 trillion cubic feet (Tcf) of proved natural gas reserves according to the Oil & Gas Journal. One of the larger natural gas deposits in Yemen is in the hydrocarbon-rich Marib-Jawf area, where there may be 18 Tcf in recoverable volumes of natural gas, according to Yemen's government.

Until 2009, Yemen reinjected nearly all of the natural gas it produced to aid in oil extraction. In 2009, the Yemen LNG facility opened, and the country began to divert dry natural gas away from the oil fields and toward domestic and international consumers. Yemen's domestic market began consuming small amounts of natural gas in 2009, and there are plans to increase the use of natural gas in many sectors—particularly in power generation—to make up for diminishing petroleum supplies.
Exploration and production

Because Yemen's natural gas was historically reinjected into oil fields to aid oil recovery, there was rarely any exploration specifically targeting natural gas. After the opening of the Yemen LNG facility in 2009, the economic incentives for discovering and producing natural gas changed.

Yemen began producing natural gas in the early 1990s, however, from 1993 until 2009—when the Yemen LNG facility came online—Yemen reinjected virtually all (98%) of the natural gas produced inside the country. With the opening of the country's only LNG facility in November of 2009, Yemen began producing commercial quantities of dry natural gas for the first time in its history. In 2013, Yemen produced 365 billion cubic feet (Bcf) of dry natural gas, up from just 28 Bcf in 2009 when the production of dry natural gas began.

With the continued build-out of infrastructure to feed Yemen LNG, the possibility of diverting natural gas used in oil recovery to domestic consumers—such as the power sector—becomes more feasible. Further, exploration in Yemen's onshore and offshore blocks may yield additional recoverable quantities of natural gas, although, like oil exploration, the security environment in the country will play a big role in determining the interest of international investors.

Exports, imports, and consumption
The startup of the Yemen LNG facility in 2009 gave Yemen the ability to export natural gas for the first time.

Yemen has never been a natural gas importer, and until 2009, never consumed natural gas domestically. Since 2009, Yemen's natural gas consumption has grown, but not nearly as fast as its natural gas exports. Yemen's consumption of natural gas remains limited, peaking at just 34 Bcf in 2010. In contrast, Yemen exported about 330 Bcf of LNG in 2013, representing more than 90% of its total dry natural gas production that year. According to IHS Global Insight, Yemen LNG provided approximately 3% of 2013 global LNG volumes.

French company Total operates the 6.7 million ton per year (322 Bcf) Yemen LNG facility, and most of the exported LNG is under contract to GDF Suez, Total, or Korean Gas (KOGAS). The volumes purchased by GDF Suez and Total are non-dedicated—meaning that they can go to any willing buyer—while the volumes contracted to KOGAS all go to South Korea.

In late 2012, Yemen LNG began renegotiating its contracts with GDF Suez and Total, claiming that the prices it received for LNG were too far below prices elsewhere in the international market. As of July 2014, these companies have not agreed on a new price. However, in 2013, KOGAS agreed to increase its contract price. Yemen LNG is also in discussions with Turkey's Petroleum Pipeline Corporation (BOTAS) on a deal that could send up to 35 Bcf of LNG per year to Turkey.
Source: EIA