The Papua New Guinea State has signed the gas agreement for the US$10 billion (K33.7 billion) Papua LNG project with Total, ExxonMobil and Oil Search. The project, which will double PNG’s gas production, represents the second-largest foreign direct investment ever in the country.

A drone from Total’s METIS research project over the Elk-Antelope gas fields in PNG. Credit: Total/RPS

‘The finalisation of the Gas Agreement is a major milestone for Papua LNG project that confirms the commitment of all partners and the Government of Papua New Guinea to make the project a success for all stakeholders’, said Patrick Pouyanné, Chairman and CEO of Total.

‘We are very pleased with the progress of this competitive LNG project that benefits from the brownfield synergies with existing liquefaction facilities and the proximity to Asian markets. It will further strengthen our position in the Pacific basin and ensure our future LNG portfolio growth.’

Peter Botten, Oil Search’s Managing Director, defines the agreement as ‘a major milestone’ for the Papua LNG Project.

‘We believe the fiscal and other terms of the Gas Agreement equitably allocate project benefits and returns to the State, the project participants and other stakeholders,’ he said.

The details on tax concessions and exemptions will be closely watched.

The Bank of PNG, in its March Monetary Policy Statement strongly urged the government to ‘push for the country’s national interest’ when negotiating resources projects.

Terms and conditions

The Papua LNG Gas Agreement has a number of negotiated conditions, including:

• A Domestic Market Obligation (DMO), which will provide gas for sustainable future domestic usage.
• A deferred payment mechanism for the State’s payment of prior costs, easing the financial burden associated with the State’s acquisition of its equity interest in the Papua LNG Project.
• National content agreed conditions to ‘support local workforce development, involvement of local businesses and socioeconomic development of the communities impacted’.

The agreement signing, according to Oil Search, will allow the partners to proceed with confidence into Front End Engineering and Design (FEED) related activities, commencing with contractor selection and engineering contracting.

The Managing Director of Total PNG, Jean-Marc Noiray, told Business Advantage PNG that the project’s pre-FEED studies are now completed, paving the way for the FEED stage to begin.

‘We will be contacting the market, tendering where we need to tender and preparing all FEED contracts to be kicked-off by middle of this year,’ Jean-Marc Noiray, Managing Director of Total PNG told Business Advantage PNG in an exclusive interview.

He said a Final Investment Decision (FID) isn’t expected until the fourth quarter of 2020. First production from the new LNG trains should start in 2024.

Shared infrastructure

In addition to the Gas Agreement, three downstream Operating Agreements were signed by the Joint Venture Partners: the Facilities Access Agreement (FAA), the Downstream Operations and Cooperation Agreement (DOCA) and the Cost Sharing Agreement (CSA).

This will allow the PNG LNG project and the Papua LNG project to share infrastructure and reduce costs.

‘These agreements will allow the Papua LNG downstream facilities to be built and operated inside the current PNG LNG facility area near Port Moresby,’ Oil Search said.

‘It will avoid any unnecessary duplication in construction.’

Shared equity

The Managing Director for Kumul Holdings Petroleum Ltd (KPHL), Wapu Sonk, said the ‘execution of these complex agreements is a critical milestone.’

‘We are particularly pleased that the Joint Venture Partners have agreed to assist Kumul Petroleum by way of carry and that brings certainty to KPHL exercising its full equity entitlement of 22.5 per cent, of which 2 per cent will be carried by KPHL for the Land Owners.

‘We are also delighted that this Gas Agreement includes provisions to supply gas to the domestic market at competitive prices, as well as providing conditional access to the project pipelines to other developers.

The inclusion of these two items is critical for KPHL’s unrelenting electrification campaign to help the State reach its target of connecting 70 per cent of households by 2030.’

Meanwhile, there are related issues to resolve. The Purari Development Association, an umbrella group that claims to represent eight member tribes from the Baimuri Sub-District, Gulf Province—allegedly the registered title holders ‘over the upstream and midstream segments’ of the project—has sent an open letter to the Prime Minister Peter O’Neill arguing for a deferral of the agreement.