Yemen LNG Seeking to Increase Prices to Korea Gas, Foreign Minister Says

Source: Bloomberg

By Nasser Morshid - Jul 25, 2010


Yemen’s government is seeking to increase the prices at which Yemen LNG Co. has contracted to sell liquefied natural gas to one of its shareholders, Korea Gas Corp.

The government will take “any legal steps” to try to ensure that Yemen LNG negotiates higher prices with Korea Gas, Foreign Minister Abu Bakr al-Qirbi said in an interview on July 21 at his office in Sana’a. The prices set in a 20-year contract between the companies are “unfair” to Yemen because they are below those that regional suppliers Qatar and Oman charge for their liquefied gas, he said, without giving a price target.

LNG is often sold under long-term contracts at negotiated prices that are confidential. The gas that is chilled and converted into a liquid for transportation by ship is also sold on the spot market.

Korea Gas owns 6 percent of Yemen LNG, while state- controlled Yemen Gas Co. holds 16.7 percent. Yemen LNG began producing earlier this year and has an annual production capacity of 6.7 million tons. Its other shareholders include Total SA, with a 39.6 percent share, and Dallas-based Hunt Oil Co., with 17.2 percent, according to Yemen LNG’s website.

If Korea Gas balks at paying higher prices, “the government will seek its rights through legal advice and any legal steps that can be taken,” al-Qirbi said. The minister declined to specify those possible steps.

The agreement between Yemen LNG and Korea Gas is binding on both sides, al-Qirbi said. “But in that agreement there is also the right of the parties to address issues that may create a disadvantageous situation for one side or the other,” he said.

Yemen’s President Ali Abdullah Saleh ordered a review of contracts signed between Yemen LNG and its customers to try to bring them into line with current gas prices, the official Saba news agency reported on June 15. Managing Director François Rafin said at the time that Yemen LNG would honor its contracts with buyers including GDF Suez SA and Korea Gas.

Al-Qirbi denied that the government’s budget deficit was a factor in its decision to review the contracts.

“There was unfairness in the prices of our LNG,” he said. The Yemeni producer should increase its selling prices “to the extent that is normally exercised with the other producers of LNG like Qatar and Oman.”

Natural gas for August delivery closed on July 23 at $4.580 per million Btu, down 1.4 percent, on the New York Mercantile Exchange.

A member of Yemen’s parliament’s oil and gas committee, Sakhr al-Wajeeh, told reporters on July 12 that the government would lose billions of dollars if Yemen LNG does not raise its prices.

Yemen has turned to LNG as a potential alternative export to oil, the source of 75 percent of its income. Crude production may drop to 260,000 barrels a day this year from 440,000 barrels a day in 2001, according to U.S. Energy Department data.