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Yemen LNG responds to media speculation

LNG Industry,

Yemen LNG has released a statement in response to a series of incorrect information recently conveyed in the media and across social networks about the company.

In response to concerns and questions that relate to the company, Yemen LNG has stated the following:

The Sales & Purchase agreements signed by Yemen LNG and the buyers have been negotiated in a fair and transparent manner:

As is the norm with any LNG project which have a high capital cost, long term Sales and Purchase Agreements (SPAs) with potential buyers need first to be signed in order to demonstrate that there are sufficient stable revenues in the long term to allow for the financing of the construction of the liquefaction facilities.

In August 2005, following an open tender process, Yemen LNG and the Korean company KOGAS signed a Sales and Purchase Agreement for the supply of 2.05 million tpa of LNG to Korea. At the time, the pricing in the original contract signed by Yemen LNG was comparable and in some cases better than other sales to Korea, including for example, Russian Sakhalin company in July 2005, Malaysia LNG (MLNG Tiga) in July 2005 and Tangguh LNG (Indonesia) sales to Korean buyers in 2004.

Also following a call for tenders, two additional SPAs were signed by Yemen LNG in August 2005 with Total Gas & Power Ltd for 2.1 million tpa, and GDF Suez for 2.55 million tpa, both with deliveries to the US and European market.

The negotiation process between Yemen LNG and its buyers during the negotiation of the SPAs was conducted at arm’s length and great care was taken to ensure that the negotiations were fair and transparent.

The three SPAs were subject to considerable scrutiny before their approval by the Ministry of Oil and Minerals (MOM). Indeed, they were reviewed by a Parliamentary Commission specifically set up for this purpose. Particular attention was paid to ensure that sufficient reserves were available over the life of the SPAs. They were reviewed by Parliament and then formally approved by the Government in a Ministerial Resolution dated 16 August 2005.

Yemen LNG and its buyers have been and are renegotiating sales prices to take into account the evolution of the gas markets:

The KOGAS SPA contains a Brent based price formula with floor and ceiling and a five-year renegotiation clause.

The Total Gas & Power Ltd and GDF Suez SPAs are linked to the Henry Hub gas price index (American and European market) - which was very favorable to Yemen LNG at the time of the signature.

A separate floor agreement was signed to guarantee minimum prices in case the Henry Hub prices were to remain at a low level for an extended period of time.

In early 2009, in the wake of the US Shale gas boom, the Henry Hub gas prices fell sharply down to US$ 1.5/MBtu. On the other hand, gas prices in Asia started rising led by a growing energy demand in booming economies such as China. Rising Asian prices and dramatically lower US prices was the complete opposite of the forecasts being made by independent experts engaged at the time of signing the SPAs (2005).

Following this collapse in HH prices, Yemen LNG negotiated and signed two agreements with Total Gas & Power Ltd and GDF Suez in order to offset the negative impact of the price collapse by allowing the diversion of LNG cargoes to more lucrative markets such as Asia.

In 2013, 80% of the cargoes sold by Yemen LNG to Total Gas & Power Ltd were diverted to Asia were prices are currently the most favorable, thus generating a significant price upside for Yemen LNG.

Status of negotiations for price reviews with all three buyers:

Negotiations for price reviews with all three buyers started in June 2013 by a joint task force which included the Yemeni government and Yemen LNG.

Negotiations were concluded with KOGAS in December 2013 under the contractual price review clause, reaching an agreement for a sales price representing the current Asian market.

Negotiations with Total Gas & Power Ltd and GDF Suez are still ongoing and are confidential.

Cost of construction of Yemen LNG:

The cost of the construction of Yemen LNG project was US$ 4.5 billion. Projects constructed at the time cost double or more. If Yemen LNG were to be built today, the cost will be three times the original cost. The cost of construction was fully financed by shareholder funds. Shareholders provided the project with first-hand international expertise in complex financing operations thus minimizing financing costs.

Yemen LNG Project brings large revenues to Yemen:

The Yemen LNG revenues to be generated for the State of Yemen by Yemen LNG is estimated to be approximately US$ 60 billion over the next 20 years.

Adapted to house style by Katie Woodward

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