A long-awaited project led by France’s Total SA that will help LNG exports from Papua New Guinea has come another step closer with the government agreeing to set financial terms early next year.
The LNG expansion, which analysts estimate will cost $13 billion, is crucial to the Pacific island nation’s economy as LNG is its biggest export earner, while demand for the fuel is surging in international energy markets.
Prime Minister Peter O’Neill said in the country’s capital of Port Moresby on Nov. 16 that “physical terms” had been agreed. He said negotiations over how revenue would be shared in the community and provincial governments required more work.
“I’d say we are almost 50 to 60% through already about our understanding of revenue sharing,” O’Neill said in response to questions from Reuters.
Disagreements over landowner rights and revenue-sharing agreements have been an almost constant feature of resource development in PNG.
A non-binding memorandum of understanding (MOU) signed on Nov. 16 is basically a commitment by the government to finalize a gas agreement in early 2019, which would lead to the development of Papua LNG, run by Total.
The signing was held on the sidelines of the PNG-hosted Asia-Pacific Economic Cooperation forum, where Total CEO Patrick Pouyanné said he hoped to make progress on the agreement quickly.
“There is still some work to be done, but we are ambitious and I’d love to come back not in two years but in 10 months or before,” Pouyanné said.
Papua LNG will supply gas from the Elk-Antelope fields for two new processing units, called trains, at Exxon Mobil’s PNG LNG plant.
At the same time, Exxon Mobil plans to develop gas at the P'nyang Field to help fill a third new train at the plant. All together the projects will double the plant’s output to about 16 million tonnes a year.
Exxon Mobil said in an emailed comment that it was pleased to see progress on the Papua LNG talks.
Oil Search, a partner in both Papua LNG and PNG LNG, said all parties were “aligned on the need to ensure that new LNG developments in PNG remain competitive with other new LNG projects worldwide.”
The companies are racing to start exporting from the new trains by 2024, when the LNG market is expected to need new supply to meet rapidly growing demand in Asia. But analysts say that timeline might be hard to meet as a final investment decision may not come until 2020 or 2021.
“Ultimately the timeline for Papua will be dictated by Exxon’s patient and disciplined centralized decision-making process, and all other parties will just need to fall in line with that,” Credit Suisse analyst Saul Kavonic said.
Analysts estimate the expansion will cost about $13 billion, well below the $19.5 billion cost of the original project, which involved building a wide range of infrastructure from scratch, including a 700-km (435-mile) pipeline through the nation’s rugged highlands down to the coast. The government is aiming to strike better fiscal terms for the country than it did with Exxon Mobil's PNG LNG project in 2009, when it was looking secure the biggest foreign investment in the country amid the global financial crisis.
A final investment decision is expected later this year.
Santos has signed a binding letter of intent to acquire a 14.3% interest in in Petroleum Retention License 3 (PRL 3), which contains the P’nyang natural gas field in Papua New Guinea, the company said in a news release May 16.
The agreement calls for the delivered ex-ship supply of 1.6 million tonnes per annum (MTPA) for a base term of 17 years from the commercial start date, according to a news release.