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YEMEN LNG TREADING THE BOARDS OF THE LNG STAGE

Ibrahim Ali Abulohoum General Manager Gas Division Ministry of Oil and Minerals Sana'a, Yemen

ABSTRACT This paper provides an overview and an update on the Yemen LNG project: The signing of long-term sales contracts with Kogas, Suez LNG Trading S.A. and Total Gas & Power in August 2005 established the groundwork for the launch of Yemen LNG. Construction of the two-train liquefaction plant at Balhaf started in September 2005, only weeks after the final investment decision was taken. Once operational, the facility will produce 6.7 million tons of LNG per year. The entire guaranteed plant output will be sold under the aforementioned long-term agreements into the US and Korean markets. Approximately one third of the production will be sold on an ex-ship basis for which Yemen LNG has chartered four LNG vessels. As the single largest investment project in the Republic of Yemen, the venture will play a key role in opening up the country for further industrial development. Yemen LNG will be project-financed and as such will set a precedent for future investment projects in the country. Yemen LNG also aims to set new standards both in terms of its environmental policies and in respect of its role in promoting sustainable development.

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INTRODUCTION The Republic of Yemen is a country with a very long history and deep rooted culture and traditions. It is the southernmost country of the Arabian Peninsular with a population in excess of 21 million, the majority of whom are Muslim and Arabic-speaking. The population is growing at a rate of 3.5% per annum and almost half of the inhabitants are less than 15 years old. Its land area of more than half a million square kilometres lies between Oman to the east and Saudi Arabia to the north. The coastline of nearly 2000 km borders the Arabian Sea, the Gulf of Aden and the Red Sea. Yemen has a small but wellestablished and prosperous agricultural sector based on the limited area of arable land available. Despite of the shortage of arable land, the agricultural sector and fishing remain by far Yemens largest source of employment. Yemen is a relative late-comer to the international oil and gas scene. However, it shares many of the challenges of other hydrocarbon-producing countries. The large population and requirements for economic development place a heavy responsibility on the government for sound development and utilisation of natural resources. This entails difficult decisions in ensuring an appropriate balance between the needs of the country and its people and the requirement to maintain a sufficiently attractive economic and regulatory climate to attract international investors. The Yemen LNG Project is a key element of the Governments policy to develop the Republic of Yemens natural resources. The project involves the construction and operation of a two-train natural gas liquefaction plant with a guaranteed capacity of 6.7 million tonnes per annum (MTPA), plus associated pipelines, storage and port facilities. In line with the project schedule, overall project progress at the end of December 2006 was over 44%. First commercial LNG deliveries are scheduled for early 2009. With an overall investment budgeted at US$ 3.7 billion, Yemen LNG is the single largest investment project in the Republic of Yemen. The project is expected to play a key role in opening up the country for further industrial development. Yemen LNG also aims to set new standards both in terms of its environmental policies and in respect of its role in promoting sustainable development. Our paper provides a brief overview of the Yemen LNG project and focuses in particular on the environmental policies and measures taken to promote sustainable development in Yemen.

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1.

PROJECT DESCRIPTION

1.1. Sponsors of Yemen LNG The main sponsors of Yemen LNG are The Government of the Republic of Yemen through Yemen Gas Company (YGC) and the General Authority for Social Security and Pensions (GASSP) and its foreign shareholders, Total, Hunt, SK, Kogas and Hyundai. Yemen LNG is a limited liability company whose objectives include all matters related to the development of the project. The respective percentage shareholdings are as follows:

GASSP
39.62% 17.22% 16.73% 5.00%

9.55%

6.00%

5.88%

1.2. Reserves The Republic of Yemen has dedicated 9.15 trillion cubic feet of proven natural gas reserves from Block 18 of the Marib fields for use in the Yemen LNG project. An additional 1 trillion cubic feet from the same area have been reserved for future domestic use.

UPSTREAM FACILITIES

MAIN LINE SUPPLY OF GAS TO LNG PLANT SPURLINE

MABAR

LNG PLANT: 2 TRAINS & TERMINAL

Figure 1: Yemen LNG Liquefaction Plant and Gas Fields

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1.3. Plant and Port Facilities The operation of the liquefaction unit for the plant will be based on the proven industry standard APCI process. Front-End Engineering studies were carried out in the late nineties by Bechtel and Technip. The plant engineering, procurement and construction (EPC) contract was signed in early September 2005 with YEMGAS FZCO, a joint venture among Technip, JGC and KBR. The plant will include such ancillary facilities (power generation, desalination, waste water treatment and steam generation) as are necessary to enable the project to be operated on a self-supporting basis in a safe, efficient, reliable manner in accordance with applicable international standards respecting health, safety and the environment.

Figure 2: The LNG Plant Construction Site at Balhaf The location of the port facilities at Balhaf was selected because it provides appropriate marine conditions with its natural shelter from winds and currents. Furthermore, it is also a location that has the least possible adverse impact on both populations and the environment. Balhaf is a generally uninhabited coastal area on which only a few fishermen used to land during the summer monsoon period. Similarly, the pipeline route crosses mainly through deserts and thinly populated regions. Once completed, some 100 LNG carriers will be loaded at Balhaf each year. The port facilities have been designed to accommodate vessels with capacities ranging from 70,000 m3 to 205,000 m3.

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1.4. Pipelines The project involves the construction of two main pipelines. The first pipeline is for the transportation and supply of natural gas from the dedicated fields to the liquefaction plant. It will run for approximately 320km from the block 18 production centres in the Marib region of central Yemen to the plant at Balhaf. The second pipeline is a 200 km spur line, which will transport natural gas destined for domestic consumption from Marib to the city of MaBar, South East of the capital Sanaa. 1.5. Shipping Arrangements Yemen LNG has entered into time charter parties for four vessels which will be used to deliver about 2.00 MTPA of LNG to certain specified ports in the Gulf of Mexico, including Sabine Pass, Louisiana and Altamira in Mexico. Two charter parties are with AP Moller and two with MISC. All four vessels are dual fuel diesel electric engines burning mainly gas and some diesel oil. The two AP Moller vessels will have capacity of 165,000 m3 each and are currently under construction at the Samsung shipyards in Korea. The two MISC vessels will have capacity of 157,000 m3 each and are currently under construction in Japan by Mitsubishi Heavy Industries. All four vessels will use the membrane technology and all four ships will be delivered during 2008 from the shipyards to the ship-owners. 2. SUSTAINABLE DEVELOPMENT AND ENVIRONMENTAL POLICIES

As the single largest business venture in Yemens history, Yemen LNG is committed to leaving an important positive legacy in Yemen, during and following the lifetime of this project. In addition to generating hard currency revenues for the Yemeni Government, Yemen LNG is expected to make a significant contribution to the macro-economic development of the country by encouraging further foreign investment and by improving opportunities for local investors to expand internationally. Furthermore, Yemen LNG is set to have a significant positive impact on a local and community level through the realisation of a number of sustainable development initiatives. To illustrate the contribution made by Yemen LNG to the long-term development of Yemen, we would like to highlight two areas which are of special importance to the project: a) Employment and Yemenisation b) Environmental and Social Responsibility 2.1 Employment and Yemenisation Yemen LNG will create several thousand jobs during the construction of the plant and more than 600 during operations. To ensure that the job opportunities created by the project will benefit Yemeni nationals, Yemen LNG has put in place a Yemenisation programme. This programme is an integral element of the agreements signed between Yemen LNG and the Government of Yemen. It is set up to allow Yemeni nationals to progressively take over positions held by expatriate personnel. This process applies universally from administration and technical support roles to senior management positions. Yemen LNG aspires to achieve 90 percent Yemenisation during 2015.

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To achieve this objective, Yemen LNG puts particular importance on recruitment and training. Recruitment began in June 2005 and over half of the posts required in the Companys Sanaa headquarters have already been filled. Also, in anticipation of the start-up of the liquefaction plant in Balhaf, Yemen LNG carried out a nationwide recruitment campaign for trainee technician and process operator positions in Balhaf. This campaign resulted in 16,000 applications, 4,000 aptitude tests which were carried out across Yemen, followed by 500 individual final interviews. The candidates selected for interviews corresponded exceptionally closely to the population distribution within Yemen, confirming that the campaign was successful in reaching every part of the country. Out of the 500 interviewed candidates 200 were selected and are currently undergoing a combination of theoretical, workshop and on-the-job training over a planned 18-24 month period. These young men will become the first generation of Yemeni Process Operators, Technicians and Panel Operators at the plant and are expected to progress to senior and managerial positions as their experience increases. Annual additional intakes of trainees are anticipated, and a further 40 50 will be engaged later this year in support of this process. Training plays a crucial role in the promotion of local job opportunities and accordingly, Yemen LNG has established its own Technical Training Centre at its Sanaa offices. A second, purpose-built company training centre will be opening at the end of 2007 in Balhaf. Overall, at least 300 individuals are expected to pass through the Training Centre before start-up of production in early 2009, including candidates who already have experience in the oil and gas industry and for whom special courses are being designed to provide LNG-specific training both in Sanaa and abroad. In addition to the above, 14 Yemeni engineers are working in the project teams in Paris and London and will be fully involved in the planning and commissioning of both the plant and the pipeline. Another fifteen marine trainees are following training programmes in Malaysia and India in courses under the supervision of the ship-owners of the vessels (MISC and AP Moeller) chartered by Yemen LNG. These trainees will be recruited by the ship-owners and will form the first stage of the Yemenisation of the fleet. Intakes of 15 trainees per annum are planned over the next 15 years. Non-technical training has not been overlooked, and earlier this year, the Training Centre welcomed 15 administrative trainees from the Plant and Pipeline route. These trainees are not guaranteed employment, but are being trained in English, Office Administration and IT to increase their potential to be able to fill on-site administrative roles, either with YLNG or with the numerous service companies which will also be present at the Terminal.

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Figure 3: The Minister of Oil and Minerals, H. E. Khalid Mahfoudh Bahah with technical trainees at the opening of the Yemen LNG Training Centre 2.2 Environmental and Social Responsibility Given the size and complexity of the Yemen LNG project, detailed environmental and social impact studies were undertaken which have identified that there will be some impact by the project on local communities and the environment. Yemen LNG Company is committed to the minimisation of any possible negative social, environmental and economic impacts; hence the company has implemented a sustainable development and environmental strategy which will responsibly manage any potential impacts. Yemen LNGs strategy comprises three distinct levels of action: 1. Eliminate or mitigate impacts by implementing protective measures or re-design. 2. If elimination or mitigation is not completely effective, compensate for impacts. 3. Provide investment to promote sustainable improvement in social or environmental conditions. A good example of how this 3-tier approach is implemented in the context of environmental protection can be seen when looking at the set of measures taken by Yemen LNG to protect corals in the vicinity of the plant at Balhaf. i. Eliminate or mitigate impacts by implementing protective measures or redesign: Following the findings of a baseline survey undertaken in September 2005 by the internationally recognised consultancy Creocean, Yemen LNG completely re-designed the Materials Off-loading Facility (MOF) to position it between two coral banks and to significantly reduce the footprint on the seabed by moving from a rock-dumped solution to a piled bridge solution. The design and construction of the Materials Off-loading Facility was a particular concern to the government, in terms of minimising impact on the corals and also the adjacent fish spawning grounds. Interference with the fish spawning grounds and local fish migration would have had longer term implications for the fish populations and the local fishing communities. By modifying the MOF, impact on the corals and fish stocks could be kept to a minimum. Also, the project has been using silt curtains to protect corals from sediments suspended in the water due to the construction and general harbour activities. In addition, Yemen LNG has also re-designed

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the shoreline works to the north of Balhaf cape to eliminate any possible impact on corals or fish by moving the shoreline construction back onto land, thus avoiding the potential for physical damage to marine life. Similar re-designs were carried out for the cooling water outfall pipe, which was lengthened and reoriented to eject the warm water at an increased distance from the corals, thus avoiding the risk of coral morbidity or mortality due to any slight increase in seawater temperature. ii. If elimination or mitigation is not completely effective, compensate for impacts: Notwithstanding the above, Yemen LNG recognises that some physical impacts to corals cannot be avoided during the site construction works. Yemen LNG is working with the construction contractors to minimise the area of corals at risk. Furthermore, Yemen LNG has implemented a regular and thorough independent monitoring programme to monitor each phase of the construction works and to identify where corrective measures might be needed, or where works would need to be reconsidered to reduce impacts. Yemen LNG is committed to compensate for any potential impacts. In the context of the coral populations near Balhaf this is done in two ways: Firstly by identifying either natural or artificial substrates on which coral re-growth can be promoted. Secondly, Yemen LNG is working with internationally recognised coral transplantation experts to carefully transplant corals away from the areas under threat, in order to promote new populations and new growth. Initial transplantation work at Balhaf is proving very encouraging. The photographs below show the coral samples which have been removed from their natural location to a new location remote from the construction works and where the success of the transplantation can be monitored.

Figure 4: Coral Transplantation

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iii. Provide investment to promote sustainable improvement in social or environmental conditions: Beyond its Project commitments, Yemen LNG is planning to contribute to the development and implementation of some projects within the national Coastal Zone Management Plan (CZMP), which is a government sponsored initiative to preserve the unique environment with its biological diversity along the coasts of Shabwa. 2.3 Social Responsibility Another area, where Yemen LNG is committed to play an exemplary role is the promotion of long-term sustainable development initiatives. To that effect, Yemen LNG has developed a policy framework that seeks to address the needs of the local populations along the pipeline route and in the vicinity of the liquefaction plant at Balhaf. One key pillar of these development initiatives are the public consultations which are carried out with concerned local communities. Yemen LNG has created forums for discussion where information relating to the project can be exchanged and where concerns can be raised.

Figure 5: Consultation and disclosure workshop with government stakeholders

Figure 6: Balhaf village representatives meeting with Yemen LNG staff

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Some examples of investments being made as a result of Yemen LNGs consultation work with local communities include:

The construction of a multi-million-dollar breakwater at Jelaah, 15 km West of Balhaf which will provide protection to the local fishermen during the monsoon season when high winds and rough weather can be expected; the provision of equipment to assist the hauling of the boats to the shore; the upgrading of the fish auction facilities at Bir Ali, another famous historical port 30 km East of Balhaf; the upgrading of roads to local fish markets and auctions; the installation of fish aggregation devices and the creation of artificial reefs; the provision of computer equipment and training to enable the accurate recording of catches and prices obtained for different fish species. Over time, this will contribute to improve management of fish reserves along the coast line. Along the pipeline route, the provision of safe access to drinking water in the four directorates and training and awareness to improve health and hygiene in 27 selected villages. This work is being undertaken in conjunction with the French Red Cross and Yemeni Red Crescent Society (YRCS). The project also includes strengthening YRCSs capacities in the region through the creation of a branch and sub-branch in the area and providing training for volunteers. Refurbishing a range of school buildings (including the building of one new school, new classrooms and the upgrading of teacher accommodation facilities) in the coastal area near the plant and along the pipeline route, using local labour as well as providing classroom equipment and supplies thus improving education facilities The installation of a Diesel Electric Generating Unit for the local town of Bir Ali, with appropriate connection to the local distribution arrangements.

Figure 7: Inauguration of the Diesel Electric Generating Unit at Bir Ali

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3. CONCLUSION For the years ahead, Yemen LNG is determined to establish itself as a first-class LNG producer. It is committed to become a model for industrial development in Yemen and to make a significant contribution to Yemeni society throughout its project lifetime. In addition to its direct impact to the Yemeni economy by generating hard currency revenues and by providing an outlet for otherwise untapped natural gas reserves, the project has a noticeable impact on the local labour market where it creates directly and indirectly new job opportunities. The project is furthermore likely to act as a catalyst for foreign investment in the country as it will act as a model for large-scale industrial developments in Yemen. Apart from the positive effects on a macro-economic level, Yemen LNG has set itself high standards both in terms of its environmental policies and in respect of its role in promoting sustainable development. A number of its initiatives start to have a positive impact on the local communities around the construction site in Balhaf and along the pipeline route. Yemen LNG is determined to actively pursue this approach over the years to come.

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