Wednesday, July 20, 2011

Analysis: Yemen's fuel mayhem to continue

By Humeyra Pamuk
DUBAI | Wed Jul 20, 2011
DUBAI (Reuters) - Fuel shortages in Yemen will persist even after its oil pipeline and main refinery recently restarted, because tanker-hijacking tribes and an emerging black market threaten fuel supply and add to the country's instability.
Yemen is only a small crude producer with a daily output of just 260,000 bpd of oil and modest liquefied natural gas sales.
But its location on the strategically important Bab al-Mandab strait, through which millions of barrels of oil and tonnes of other goods are shipped daily between Asia, Europe and the Americas, could make instability in Yemen a risk to global trade.
A mid-March attack by tribesmen on its main oil artery cut off crude to the 150,000 barrel per day Aden refinery, forcing it to shut, creating severe fuel shortages.
The poorest Arab country, already struggling to provide basic public services to the majority of the population, also lost export income and was forced to almost double its fuel imports when it could least afford to.
The quiet repair of the pipeline may have revived hopes that widespread fuel shortages will subside, but analysts say many other problems will continue to cause fuel shortages.
"We're now in the wild, wild west here," one Yemen-based Western shipping source said. "The repair of the pipeline will definitely solve some problems ... it will help the government with its finances. But the (poor) distribution of fuel, the black market -- those problems will remain."
The pipeline carries Maarib crude to the coast, where it is loaded on tankers for transport to the Aden refinery. The first shipment is expected to move later this week, shipping sources said.
But the real distribution challenge starts once the crude is refined.
"It's not as simple as the pipeline starting up and fuel being freely available," said Lucy Jones, Middle East analyst at risk consultancy Control Risk.
"Insecurity on the road to Aden means delivery to neighboring provinces remains extremely difficult; not only because you have actual fighting going on, but also because tribes are confiscating tankers or demanding lots of money to let them pass," she said.
Yemen has descended into chaos over the past six months as protestors have demanded the departure of its long-standing but increasingly unpopular president, Abdullah Ali Saleh.
The government has virtually been paralyzed since Saleh left for Saudi Arabia after an attack on the presidential compound. As he recovers from his injuries in Riyadh, the chaos has intensified in the political vacuum he has left behind.
"(Yemen) It's right next door to Saudi. It is sitting on the edge of a very important waterway," a Gulf-based trader who supplies fuel to the country said.
"I wouldn't want to think of a situation of tribes taking over the country.
The fuel crisis also has meant that many areas of the arid, mountainous country have gone without power for much of the day because of a lack of fuel for power plants, while water supplies to some regions have run dry.
The International Monetary Fund says Yemen's inflation rate may surge as much as 30 percent this year as the unrest and the damage to the oil pipeline have further strained the economy.
"The main problem was the fact that they were not getting income from oil exports, but also they were having to pay additional money for fuel," Control Risk's Jones said.
An injection of 3 million barrels of crude donated from Saudi Arabia allowed the Aden refinery to restart in June, but because the Saudi crude was not as light or low in sulfur as Yemen's Maarib oil, it did not yield anywhere near enough diesel and gasoline.
A senior government official said in late June that Yemen needed 4,000 tonnes of gasoline daily and was able to produce only 1,200 tonnes from the donated crude, forcing the cash-strapped government to continue imports.
On the burgeoning black market, gasoline and diesel are now sold at nine to 15 times the official price at established filling stations for the little fuel that can still be found, making life for the country's 23 million people, 40 percent of which live on less than $2 a day, even more difficult.
Gasoline, which was 75 Yemeni rials per liter before the crisis now is sold at 550-600 rials ($2.53-$2.76) on the black market, while the price for diesel has gone up to 1,000 rials from 60.
Fuel trucks feeding fuelling stations rely on armed guards for protection.
In early June, fuel shortages sparked violent clashes at petrol stations in several provinces, killing three people and injuring 12.

"After waiting in line for several days, I reached the front of the line at the petrol station at dawn Sunday. Suddenly there was a scuffle between some armed men who wanted to cut the line and the station workers, so the gunmen started shooting," Sanaa resident Mansour Ibrahim said.
"I didn't have any choice but to leave my car and flee, I was afraid I'd be killed, like others have."

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