The global gas market is set to surge, according to Justin Smirk, Senior Economist at Westpac. He told a recent Port Moresby Chamber of Commerce and Industry meeting that Papua New Guinea is well placed to benefit.

Westpac’s Justin Smirk

When the big collapse in gas prices occurred in 2015, oil companies around the world ‘went very conservative,’ said Justin Smirk. ‘It was all about trying to control the cost base.

‘Now, there is a shortage emerging. Gas prices are rising faster than oil prices.

He said that, in 2017, liquefaction capacity under construction (new LNG capacity) was over 30 billion cubic metres (bcm).

In 2018, construction increased to over 50 bcm and in 2019 it is expected to be over 40 bcm.

In 2020, however, new construction is expected to drop sharply to below 10 bcm.

‘If there is ever a time to talk about putting a gas project into a country like PNG, now is the time.

‘PNG is very high on the radar for the gas industry to invest in; they love PNG.

‘The ball is really in the hands of PNG now.’

China

Smirk said there will be a surge in demand coming out of China.

‘China’s growth projections in the next 10 to 15 years is for multiples of the current input levels.

‘Sixty per cent of their gas consumption will come through imports—half of that from Russia, half of that from LNG.’

‘Smirk said Westpac is forecasting 2.3 per cent growth in PNG this year’

Smirk said the trade war between the United States and China is largely confined to those two countries.

He noted that Japan and the European Union have just signed the largest free trade deal in history.

‘The  French president has been running around the Pacific Islands in the last 12 months; they are doing trade deals as well.’

Smirk said the Japanese, Australians and South Koreans have also been showing an interest in the Pacific.

‘Everyone … is still negotiating bilateral agreements—without the US.’

Growth

Smirk said Westpac is forecasting 2.3 per cent growth in PNG this year (against global growth of 3.6 per cent) and 3 per cent for 2020 (against global growth of 3.5 per cent).

‘The reason we are forecasting commodity prices to slow next year and to ease back: oil, copper, gold, is the fact that there will be a lower global growth profile, higher interest rates in the US—meaning a higher US dollar as well.

‘There is a slowdown coming.’

Smirk said that, as the resources boom in PNG ended, growth in employment reversed.

He said formal employment in PNG fell 4.5 per cent in the two years to March 2018.

Employment in the wholesale sector rose 1.5 per cent, and by 0.9 per cent in financial and other services 0.9 per cent.

But manufacturing employment fell by 7.8 per cent, retail by 12.5 per cent, transportation by 12.8 per cent and construction by 32.6 per cent.

However, Smirk said PNG has a ‘very resilient economy’ and businesses have a low level of debt.

‘They came out of this boom and bust with a stable commercial base. It means when the economy turns up they will be well placed to recover.’

Sovereign bond

Smirk said the kina is likely to weaken over the next two years, but then start appreciating as big resources projects, such as Papua LNG and Wafi-Golpu, ramp up.

He said PNG’s US$500 million sovereign bond raising represents a lower level of debt than other countries in the region.

‘PNG is at very early stages of diversifying its funding, which allows it to get more liquidity in the system.

‘It is something that has to be managed very carefully but it is a strategic positive.’