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UPDATE 1-Yemen LNG expects first shipment in July-Aug -CEO

Fri May 8, 2009 12:11am BST

By Bruce Nichols

HOUSTON, May 7 (Reuters) - Yemen LNG expects to make the first shipment from its new gas liquefaction plant in July or August, the company’s chief executive said Thursday.

Joel Fort, CEO and general manager, said the project will come on line four months late for a little over $4 billion, 15 percent above planned cost, which he said was a success.

He commented on the sidelines of the Offshore Technology Conference.

The first of two trains is in preparation to start making LNG, natural gas cooled to a liquid state for delivery to markets beyond the reach of pipelines by oceangoing ships.

“We are now in pre-start-up mode, so we have already started, for instance, all the electrical generation,” Fort said.

“All the utilities have been transferred to the operations people. One-third of the process train is now in the hands of the operations, as well,” he said.

Start-up of the first train will be fully underway by the end of June in preparation for first cargo, he said.

A second train will come on line about five months after the first, bringing the plant to full capacity of 6.7 million tonnes per year, Fort said.

Yemen’s first LNG has been sold under take-or-pay contracts to TOTAL SA (TOTF.PA), GDF Suez (GSZ.PA) and Korea Gas Corp (036460.KS), but it is coming into a weak market.

“Some of these contracts are linked to international prices, to a marker that is very depressed. So, of course, that is a concern to us,” Fort said.

In the case of Total and Suez, there is a mechanism allowing LNG to be diverted to the strongest market to improve profitability for the buyers and Yemen LNG, Fort said.

Construction on the plant started in October 2005. It is the largest industrial project in impoverished Yemen, which has 9 trillion cubic feet (Tcf) of gas reserves.

The owners include French-based Total with a 39.6 percent stake. U.S.-based Hunt Oil owns 17.2 percent. Yemen Gas Co owns 16.7 percent.

Other partners include Korea Gas, Korea-based SK Corp [SKGRP.UL], Hyundai [HYGR.UL] and Yemen’s pension fund. (Reporting by Bruce Nichols; Editing by Christian Wiessner)