Glencore Loading Sees Yemen Restart Oil Production

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Swiss trader Glencore has lifted a 1 million barrel cargo of Masila crude in Yemen's first oil exports since a civil war in the country broke out last year, sources familiar with the matter told International Oil Daily. The loading has freed up storage capacity and allowed some oil production in Yemen's east to restart. Glencore's Singapore arm in May won a tender to take the 3 million bbl "entire announced quantity" of Masila that had been left stranded in storage tanks at the Ash Shihr export terminal on the southeast coast of Yemen's Hadramawt governorate (IOD May10'16). Hadramawt is a key oil region, accounting for a little over half Yemen's estimated 150,000 barrels per day of prewar production (IOD Mar.27'15). The trader lifted the first 1.05 million bbl of crude on Wednesday, said a government source. A second 2 million bbl shipment will follow next week. "The terminal is working now and all secure," the source added. Ship tracking shows that the Seaprince vessel loaded a cargo on Yemen's southern coast. Saudi-led forces backing Yemeni President Abed Rabbu Mansour Hadi against rebels captured Ash Shihr from Al-Qaeda militants at the end of April. The Glencore loadings needed to get approval from the Saudi coalition, which had granted protection to tankers sent to lift the crude. There were suggestions that the delays in lifting the cargo were due to concerns over the opaque structure of the deal, but the government source, aligned with Hadi, said this was not the case. Instead, the lengthy wait was down to delays getting tugboats in place, the source said. The crude was to be paid for through the Yemeni finance ministry's bank in the government-controlled port city of Aden, the source said. As well as giving Yemen a much-needed cash injection, the Glencore sale has allowed oil production in the country to restart. Output had been shut-in late last year after storage tanks at Ash Shihr filled to capacity, leaving newly extracted barrels with no outlet. Oil had been stranded in storage because a naval blockade imposed by Saudi-led forces since March 2015 prevented all tankers from loading (IOD Jun.23'15). "Since we have storage capacity now, all blocks can resume production," the source said. For oversupplied oil markets, however, a return of Yemen's oil looks unwelcome. It is unclear whether its crude will be sold on the international market, refined for domestic consumption with some products such as jet fuel going overseas, or a mixture of both. Much will depend on the level of production that can be achieved. Efforts to ramp up output will undoubtedly be hampered by the ongoing conflict and a lack of access to skills and technologies, and compounded by logistical constraints. Production started earlier this week at Blocks 10 and 14 in Hadramawt, operated by state PetroMasila. The flows are unclear, but these are two of the country's largest upstream assets, capable of pumping a combined 65,000 b/d, and are linked to the Ash Shihr terminal by pipeline (IOD Jan.7'16). It is expected that production in nearby Blocks 51 and 53, also operated by state-owned oil companies in Hadramawt, will restart in the coming days (IOD Feb.13'15). Once production is stable in Hadramawt, the plan is to start production in the Marib Basin oil fields. Crude would be trucked to the Hadramawt for export, as the Marib fields export through Ras Isa port, which is still controlled by the rebel Houthis. Iain Packham, Dubai, and Alex Schindelar, London

Oil Supply, Oil Tankers
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