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The failed Christmas plane bomber’s links to Yemen brought that country back under the geopolitical microscope. But a dark headline about Yemen the day before Christmas went virtually unnoticed. The below-the-radar message: “Yemen Reports Disastrous Drop in Oil Revenues.” Yemen’s oil production, and the national budget it has recently propped up, is cratering. And the plane bomber’s training on Yemeni soil will likely add a risk premium to the very investments needed to help slow down Yemen’s oil slide.

True, by international standards Yemen never crashed the party of big oil producers and major oil exporters. A year ago they ranked as the 36th largest producer, averaging roughly 300,000 barrels of oil a day. But their oil revenues—historically at 70 to 75 percent of government revenues and 90 percent of export revenues—mean a great deal within Yemen’s borders. The combination of lower oil prices last year plus a modest loss in production hammered oil revenues. During the first 10 months of 2009, crude oil exports brought in $1.4 billion, down two-thirds from the $4.1 billion they brought in for the same period during 2008.

To put this in context, consider these background facts about Yemen:

–Population: around 23 million people and growing at about 3.5%/year

–Size: 204,000 square miles (528,000 km2), just under the size of France;

–Terrain: mostly hot and dry desert; some high plateau country; limited irrigated land;

–GDP: about $16 billion (2004), about $800 per capita at that time–the poorest Arab country;

–Unemployment rate was 35% several years ago;

–Government instability: there is a Shi’ite revolt in the north and separatist unrest in the south

–Oil reserves: ranges between claims of 2 and 3 billion barrels;

–Electricity generation: all Yemen’s power comes from oil-fired power plants;

–LNG: after considerable delays, their first shipment, from 17 Tcf of domestic natural gas reserves, was sent to Korea in November last year from their new liquefaction plant at the port of Balhaf on the Gulf of Aden.

Table 1 shows the reality since Yemen’s oil production hit a peak and then plateau from roughly 2000 through 2003. After reaching their peak, Yemen’s exports declined 56%, from 328,000 to 190,000 b/day. On a per capita basis, that’s a loss of exports equivalent to the oil consumed by 3.1 million U.S. inhabitants—about the population of Iowa.

Table 1: Yemen’s oil production, oil consumption, and exports: 2001 vs. 2008


2009 (prelim.)


% difference

Production b/day















The figure below reveals the interaction between Yemen’s production and consumption since first oil was extracted back in 1986. Preliminary figures cited in the Yemen Observer indicate that consumption increased as much as 15% during 2009 compared to the previous year; not surprisingly, the government planned to slash by 40% subsidies which were holding down local prices and increasing domestic consumption.

During the 1980s and early 1990s, hopes were high that additional exploration in one of the few Middle Eastern countries open to western oil companies would pay off in significant new discoveries. No such luck; the lack of success from a notable seismic program during the early 1990s lead to pullouts by a number of large oil companies.

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Yet hope springs eternal. Back in early April 2008, Yemen signed oil production sharing agreements for seven exploration areas with 10 oil companies, including Austria’s OMV, India’s state oil companIndian Oil Corp., Norway’s DNO, and independent oil firm Kuwait Energy Company. As reported byboth Reuters and Bloomberg, Yemen expected to raise its oil output to around 500,000 barrels per day (bpd) by 2010 with these and other deals with international companies. For skeptics, there’s a new dartboard figure to check back on at the end of this year. But some new oil could slow or even temporarily reverse the long decline trend.

More recently, Yemen says it plans changes to approved production sharing agreements for oil-associated gas through negotiations with petroleum companies operating in the country. The idea is to provide more incentive for the oil companies to invest and boost production of both oil and gas. Additionally, the hope is that revenues from the new natural gas production will lead to construction of a petrochemical industry. A year ago, the claim was made that gas revenues to Yemen might total between $30 and $50 billion during the next two decades.

But continuing investments in Yemen’s oil and natural gas industry must confront a past and present laden with violence. Within just the last decade, which began with the attack on the USS Cole in early 2000, the industry had suffered from a string of terrorist attacks. The attack on the Cole was followed in 2002 by a similar bombing of a French oil tanker off the coast, causing a major fire and a 150,000-barrel oil spill into the Gulf of Aden. Not long thereafter, militants sent a surface-to-air missile after a U.S. oil company helicopter. In 2006, four suicide car bombs sent against oil facilities were blown up before they reached their targets. During the past three years, armed tribesmen have blown up oil pipelines and could also go after the new natural gas pipelines.

Last week Saudi and Yemeni forces announced they fought renewed battles with Houthi rebels on the border between the two states. The Saudis claim to have driven Shia rebels out of a remaining Saudi stronghold, wrapping up a campaign that started last November. But Yemen also faces growing secessionist calls in their southern lands where dissatisfaction with the tactics of President Ali Abdullah Saleh’s regime are apparently widespread. The end-game here could get ugly.

Steve Andrews began following the slowly emerging peak oil story during the late 1970s.