US embassy cable - 03SANAA1589

C O N F I D E N T I A L SANAA 001589 
 
SIPDIS 
 
E.O. 12958: DECL: 06/30/2013 
TAGS: EPET, ECON, YM, ENERGY, ECON/COM 
SUBJECT: RUMORED OIL FIND NOT ENOUGH TO SUSTAIN ROYG ECONOMY 
 
Classified By: Classified by Ambassador E.J. Hull for reasons 1.5. (B.) 
 and (D). 
 
1. (C) Summary: Rumors are circulating in Sanaa that an oil 
discovery by Canadian Nexen could contain over a billion 
barrels of oil.  Earlier, Ministry of Oil officials expressed 
optimism that new oil finds in Yemen could maintain current 
production levels indefinitely, in spite of their own 
Ministry's predictions that oil output could decline as much 
as one third by 2010.  Nevertheless, even with Yemen's oil 
production at an all time high and last year's inflated oil 
prices, the economy for 2002 did not expand as fast as 
population growth. End Summary. 
 
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Rumors of Big Oil Find 
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2. (C) AbdulGhani Al-Iryani, Chairman of Rayman Trading 
Company and member of the prominent al-Iryani family in 
Yemen, told Pol/econoff on June 25th that there were several 
rumors that Canadian Nexen has discovered a huge oil field, 
perhaps in the billions of barrels of oil. Al-Iryani cited as 
evidence two news stories on Al-Jazeera and in the daily 
newspaper Al-Ayyam announcing new finds in Canadian Nexen's 
Block 14 in the Hadramawt governorate. (Note: According to 
the Petroleum Exploration and Production Authority, Yemen's 
proven oil reserves are just over 4 billion barrels. End 
Note.) Canadian Nexen officials are reluctant to comment on 
the find, but have confirmed to Embassy officials that there 
have been new discoveries. 
 
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Ministry of Oil and Minerals Sanguine about Future 
--------------------------------------------- ----- 
 
4. (U) In an earlier courtesy call with Nabil al-Gawsi on 
June 10, Chairman of the Petroleum Exploration and Production 
Authority (PEPA) of the Ministry of Oil and Minerals, 
al-Gawsi expressed optimism that present high production 
rates of 450,000 barrels a day could be maintained, possibly 
slipping slightly to 400,000 barrels per day in the future. 
When asked to respond to most experts' prediction that oil 
production  will decline significantly in the next ten years, 
 Al-Gawsi countered that he believed there was still a great 
deal of oil to be found. He confirmed that Canadian Nexen had 
found oil in concession area 14, near in Hadramawt. Al-Gawsi 
did not comment on the size of the discovery.  (Note: The 
Ministry of Oil has publicly estimated in 2001 that by 2010 
production would drop to 1/3 of today's levels, around 
145,000 barrels a day. End Note.) Al-Gawsi also promoted 
recently opened oil concessions along the border with Saudi 
Arabia, which have recently opened for exploration after the 
conclusion of the 2000 border agreement with Saudi Arabia. 
 
5. (U) Expressing some frustration with Hunt Oil, al-Gawsi 
said that there was likely more oil in Hunt's concession near 
Marib than Hunt would extract. The concession might be opened 
to other companies if Hunt leaves after their PSA expires in 
2005. Closing by promising a bright future for oil in Yemen, 
al-Gawsi said only 3% of all the oil concessions have been 
explored, and was positive there were still more reserves to 
be discovered. 
 
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New Finds Aside, 
Oil Not the Solution to Yemen's Economic Woes 
--------------------------------------------- - 
 
5.  (C) Comment: The rumored oil find explains the optimism 
of al-Gawsi and his coworkers at PEPA and will likely delay 
the ROYG's having to compensate for revenue losses due to 
diminished oil production. The rumored size of the find is 
undoubtedly exaggerated. Most likely, al-Gawsi is more on 
target with his expectation that new finds will maintain 
current oil production levels. While new oil finds are good 
news for government revenue, oil is not a panacea for the 
ROYG economy. Last year's high oil prices and record oil 
production levels only accounted for 2.9% GDP growth (World 
Bank Statistic) for Yemen in 2002, which did not match the 
ROYG's published population growth estimate of 3.5%.  Keeping 
in mind that oil prices are expected to fall next year, 
simply maintaining current production levels will translate 
into even slower GDP growth, and most likely a budget deficit 
for the ROYG in 2004.  End Comment. 
HULL