Yemen LNG defends ongoing price reviews

13 February 2014 11:50 Source:ICIS

The Yemen LNG consortium has defended its contractual renegotiations with Paris-based offtakers Total and GDF SUEZ in the wake of growing civil unrest.

Negotiations for the planned five-year price reviews with GDF SUEZ, who lifts 2.55mtpa from the 6.7mtpa plant, Total (2.10mtpa) and South Korean state-owned offtaker KOGAS (2.05mtpa), which all began last June have currently led to only one new pricing agreement “representing the current Asian market sales price” with KOGAS in December 2013, according to Yemen LNG.

While Yemen’s Ministry of Oil and Minerals (MOM) has recently welcomed the KOGAS price revision “from $3.15/MMBtu to $14.00/MMBtu” in a public statement, ongoing discussions with Total and GDF SUEZ have come under increasing scrutiny after the deputy MOM minister Shawki Al-Mekhlafi told local media that “agreements signed during the former regime deprived Yemen of full and fair compensation for LNG sales”.

All three initial contracts were signed in August 2005 while former President Ali Abdullah Saleh was at the height of his 33-year rule in power, though Yemen LNG has emphasised the contracts were all signed following a call for tenders and were scrutinised and reviewed by a specific parliamentary committee.

Yemen LNG added that at the time of signing “the pricing in the original contract signed by Yemen LNG was comparable and in some cases better than other sales to Korea, including for example, Russia’s Sakhalin Energy in July 2005, Malaysia LNG (MLNG Tiga) in July 2005 and Tangguh LNG (Indonesia) sales to Korean buyers in 2004.”

The three contracts KOGAS signed with Yemen LNG, MLNG Tiga (for 1.5mtpa) and Sakhalin Energy (1.5mtpa) were selected after a tender process and were all at delivered prices between $3.80/MMBtu and $4.20/MMBtu with a crude oil cap of $40/bbl. The original MLNG Tiga contract has also understood to have been renegotiated upward.

Yemen LNG clarified that the original KOGAS sales and purchase agreement (SPA) contains a Brent-based price formula while the Total and GDF SUEZ SPAs are linked to the Henry Hub (HH) gas price index given cargoes for the two French companies were intended for the US and European markets. All three contracts had separate floor agreements to guarantee minimum prices.

Following the US shale boom and the “collapse in Henry Hub prices” from early 2009, however, Yemen LNG renegotiated its two agreements with Total and GDF SUEZ “in order to offset the negative impact of the price collapse by allowing the diversion of LNG cargoes to more lucrative markets such as Asia”.

The flexibility that it afforded the Paris-based offtakers thus generated “a significant price upside for Yemen LNG”, according to the statement, with 80% of cargoes sold by Yemen LNG to Total in 2013 diverted to Asia.

The extent of profit-sharing will be a part of ongoing negotiations, and the prospect of Total expanding its oil and gas activities in the country as well as potentially increasing LNG production will also be at stake.

The President of Yemen, Abed Rabbo Mansour Hadi, on 10 February discussed with Total’s managing director of Exploration and Production, Elias Kassis, “the need to make efforts to promote and develop investment and production”, according to a MOM statement, as well as LNG price adjustments “in harmony with the world prices in addition to the possibility of increasing the production of Yemeni LNG”.

In an earlier price renegotiation with Total and GDF SUEZ, Yemen’s oil minister Ahmed Abdullah Dares said “[the renegotiated] prices reached $7.21/MMBtu FOB including at least $340m as a return to the country in the year 2013”, ( see GLM 19 October 2012 ).

The Yemen LNG shareholders are currently Total (39.62%), US-based oil company Hunt (17.22%), a South Korean group of investors including SK Corp (9.55%), KOGAS (6.00%), Hyundai (5.88%), Yemen’s state-owned Yemen Gas Co (16.73%) and General Authority of Social Security and Pensions (5.00%).

By Ludovic Aldersley