Yemen gas price pressure mounts on France's Total

DUBAI Sun Feb 16, 2014 1:33am EST

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DUBAI Feb 16 (Reuters) - Pressure on French energy giant Total to pay more for liquefied natural gas that it ships from Yemen has intensified, with the state news agency reporting that the long-term deal is being probed by public prosecutors.

Total's leading role in building the $4.5 billion Yemen LNG export plant in 2005-09 made it the largest foreign investor in the country, which is one of the poorest in the Arab world.

Since coming to power in 2012, the new government in Sanaa has complained that deals signed by officials under previous president Ali Abdullah Saleh undervalued the gas and deprived the state of desperately needed public funds.

Last week, official news agency Saba quoted unnamed judicial sources as saying the government's Public Funds Prosecution service, which helps to track down corrupt public officials and retrieve funds from them, had started to probe the arrangement with Total.

The investigation, which began two months ago, encompasses several Oil Ministry officials linked to the deal and Total officials in Yemen, Saba reported without elaborating.

Contacted in France, Total did not respond to a request for comment. Yemen government officials were not available to comment on the Saba report.

Stephane Michel, Middle East president of Total's exploration and production division, met with Yemen's oil minister Ahmed Dares in Sanaa last week to discuss altering prices of LNG sold to Total, Saba said without giving details.

Total is the biggest investor in Yemen's gas export industry through its 40 percent shareholding in Yemen LNG; U.S.-based Hunt Oil has 17 percent, state-run Yemen Gas Co 17 percent and Korea Gas Corp (Kogas) 6 percent.

Before work on the LNG project began in 2005, Yemen LNG agreed on 20-year deals to sell 2.05 million tonnes per annum (mtpa) to South Korea, 2.55 mtpa to France's GDF-Suez and 2.10 mtpa to Total.

Kogas had a five-year renegotiation clause in its oil price- linked contract and last December agreed to a sharp price increase, to nearly $14 per million British thermal units (mmBtu) based on current oil prices from around $3, according to a statement from Yemen's cabinet.

The contracts signed by Total and GDF-Suez were structured differently; since the two Western firms intended to ship most of the LNG to the United States, their deals were linked to the U.S. Henry Hub gas price index. GT-HH-IDX

In mid-2005 the U.S. LNG price was around $7 per mmBtu, but by the time the Yemen facility loaded its first cargo in late 2009, U.S. gas prices had collapsed below $2, largely due to the U.S. shale gas production boom.

As a result, Yemen LNG agreed to let Total and GDF-Suez divert the cargoes to Asia, where prices have risen sharply over the last few years and are currently near $20 per mmBtu. Around 80 percent of the gas sold by Yemen LNG to Total last year was shipped to Asia, the Yemeni company said.

In a statement last week, Yemen LNG defended the contracts signed with all three companies, saying they were subject to scrutiny at the time by the oil ministry, reviewed by parliament and then formally approved by the government.

Yemen LNG has estimated it will generate around $60 billion in revenues for the Yemeni government over the next 20 years. LNG has become important as a source of foreign currency for the country as frequent attacks on oil pipelines by militants and local tribesmen angry at the government cut oil exports. (With additional reporting by Michel Rose; Editing by Andrew Torchia)

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