Increased Yemen attacks menace gas exports

DUBAI/LONDON (Reuters) - A surge in attacks on Yemen's oil and gas infrastructure by tribesmen or al Qaeda militants threaten further disruptions or a complete cut in exports.

With oil exports at a trickle, last week's 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.

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.

Yemen LNG and leading shareholder French oil major Total declined to comment on Thursday on how long the pipeline might take to repair, or whether it might declare a force majeure on supplies to customers if it is not fixed quickly.

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 October 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."

Daily oil production fell to 260,000 barrels per day (bpd) in 2010, or just 0.4 percent of the global total, down from 286,000 bpd in 2009 and continuing its steady decline from a peak of 440,000 bpd in 2001, according to U.S. government data.

(Reporting by Daniel Fineren and Humeyra Pamuk in Dubai, Henning Gloystein and Oleg Vukmanovic in London.; Writing by Daniel Fineren; Editing by Anthony Barker)

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