Yemen LNG at half price
I wrote about the price discrepancy years ago, the South Korean negotiator was bragging upon his return about how low the price was. The question of course is who in the Yemeni government negotiated the prices and what did he get in return for selling out the country. GLG
The LNG is contracted for 20 years to TOTAL ( 2.0 Mtpa), GDF Suez (2.55 Mtpa) and KOGAS (2.0 Mtpa). Since inception the plant has supplied cargoes to Korea, China, the US, Mexico, Spain, India and the UK.
Yemeni LNG is being sold to Korea at well below prevailing contract prices. Over the first half of 2010 the landed price of yemeni LNG in Korea has been $4.60-4.90/MMbtu compared with the Korean average of $10.10-11.50. In the June quarter the average price of Yemen LNG sold to China was $12.60.
It is therefore understandable that the Yemen Government would wish to increase prices and according to reports, the contracts provide scope for price renegotiation after 5 years.
However they are likely to face challenges. KOGAS has other supply alternatives (albeit at higher prices) including Qatar and new projects in Australia. Second Yemen has high political risk. It falls into the highest political risk category used by the OECD, has been seen as a breeding place for terrorists and is in danger of becoming a failed state. Other potential LNG buyers are likely to prefer more stable countries. Finally a low LNG price from Yemen provides potential leverage to KOGAS in negotiating down prices under other contracts when they come up for renegotiation.
