Papua New Guinea’s Prime Minister Peter O’Neill has announced a date for the signing of the gas agreement for the US$13 billion Papua LNG project. Opening the PNG Petroleum and Energy Summit in Port Moresby yesterday, he also outlined some of the key elements the agreement will contain.

Prime Minister Peter O’Neill addressing the PNG Petroleum and Energy Summit in Port Moresby yesterday  Credit: BAI

In November 2018, the PNG Government signed a memorandum of understanding with the developers of the US$13 billion Papua LNG project—Total, ExxonMobil and Oil Search—which set out a framework for a final gas agreement between the parties and a timeline to conclude negotiations by 31 March.

While negotiations are not finalised, it would appear they are on track.

‘The Total project is going to be signed on April 5, 2019—that is the tentative date for that agreement to be signed,’ Prime Minister O’Neill told Summit delegates.

The gas agreement will set out the project benefits and returns among stakeholders. It will trigger the commencement of the front end engineering and design (FEED) phase of the Papua LNG project.

Papua LNG aims to develop the Elk and Antelope gas fields in PNG’s Gulf Province.

Win/win

O’Neill said the government was striving for a ‘win/win agreement for all the developers and our people’.

‘Our government has learned from the past,’ he said, in reference to the gas agreement struck for PNG’s first LNG project, PNG LNG.

He said the agreement would feature:

• ‘meaningful opportunity’ for local content in the project;
• a ‘domestic market obligation’, which will mandate the use of some project gas for domestic purposes, mainly electricity generation, to be marketed by state-owned Kumul Petroleum;
• provisions for the future use of the project’s pipeline by third parties.

The last of these is designed to greatly improve the prospects of smaller, more remote—or ‘stranded’—gas finds, such as those in Western Province, being brought to market.

The advent of the Papua LNG project is expected to add two new LNG trains to the LNG Plant at Caution Bay near Port Moresby, originally built for the PNG LNG project. Each train will have a capacity of 2.7 million tonnes of gas per annum.

The State’s nominee for the project, Kumul Petroleum, has already signalled its intention to take up its mandated maximum 22.5% share in the project, with Kumul Petroleum’s Managing Director Wapu Sonk telling the summit the company had secured the services of advisory firm Lazard to assist with the capital raising.

Third gas agreement

O’Neill said there were also discussions taking place on ‘the extension of the current PNG LNG project through the P’nyang extension.’

Notably, the development of P’nyang will be closely aligned with a Papua LNG, as the two new projects will share infrastructure created for the PNG LNG project.

P’nyang will be subject to a separate gas agreement, also expected to be signed this year. P’nyang will be sufficiently large to allow for the construction of a fifth LNG train at Caution Bay.

Stability

O’Neill moved to reassure the petroleum sector that the government was commitment to providing stability for the petroleum sector.

‘As we sign the second LNG agreement, I believe the market can depend on our country and very much depend on the reliability and stability of our policies in this industry,’ said O’Neill.

He promised that the Department of Petroleum—its role as administrator of petroleum permits soon to be taken over by a statutory authority—would assess all applications on their merits.

It is in the interests of both the State and developers for both Papua LNG and P’nyang to progress quickly. Both projects are being developed to take advantage of a predicted gap in global LNG supply in the mid-2020s.

As the Summit heard from Dr Fereidun Fesharaki, Chairman of oil and gas consultancy FGE, other LNG projects around the world are also aiming to fill this same gap.

‘It is essential that PNG stays at the front of the queue,’ he warned.