As Horizon Oil awaits government and regulatory approval for their mid-sized Western LNG project in Papua New Guinea, CEO Brent Emmett says it is considering using Kumul Petroleum’s alternative pipeline proposal, but wants assurances the pipeline is viable before committing.

Horizon Oil’s Brent Emmett Source: Business Advantage International

Horizon and its Spanish partner, Repsol, hold about 70 per cent of the gas resources which make up the Western LNG project, which involves the aggregation of four fields: Stanley, Elevala/Ketu, Ubuntu and the Puk Puk/Douglas fields.

‘The project will generate over a billion dollars a year in revenues, for at least 20 years,’ Emmett told the Business Advantage PNG Investment Conference in Sydney last month. ‘Proven resources show the project will last 15 years.’

The bulk of the reserves—between 2 and 2.5 tcf (trillion cubic feet) of gas, with 60-70 million barrels of condensate—lie in three licences: Stanley, Elevala/Ketu and Ubuntu.

‘Horizon proposes building a 500 kilometre pipeline.’

‘These are expected to last about 15 years. As they go into decline, the Puk Puk/Douglas field would come on stream, giving the project a total life of 20 years.

Horizon proposes building a 500-kilometre pipeline to a liquefaction facility located near Daru Island in Western Province, which would process 1.5 million tonnes of LNG a year.

Western pipeline

Meanwhile, Kumul Petroleum is investigating the possibility of building its own Western Pipeline, which involves bringing gas from smaller (or ‘stranded’) fields.  Starting from Elevala, it would go about 400 kilometres to Kopi, and then another 400 kilometres to Caution Bay in Port Moresby.

According to state-owned petroleum company, the proposed pipeline would provide transportation for aggregated oil and gas from Western and Gulf provinces.

‘We’ve been supporting Kumul [Petroleum] in that exercise but we would consider delivering our oil and gas to that project only when its viability is established in commercial terms and the timeline is acceptable,’ said Emmett.

‘We would not be deflected without having a high level of certainty in an alternative plan.’

‘Until those conditions are met, our obligation to PNG, and all the other stakeholders, is to progress the project we can deliver on—Western LNG.

‘As you would expect, we would not be deflected without having a high level of certainty in an alternative plan.

‘It’s important to us and all our stakeholders, including the Government, that we get these reserves into production; that we don’t wait interminably to put them at the tail end of someone else’s project.’

Domestic sales

Horizon’s plan provides for four points at which gas could be taken for the domestic market.

‘This is a very important part of our project because in Western Province, apart from a small amount of intermittent hydro power, the bulk of power generation is fired by imported diesel.

‘A final investment decision is reportedly expected in 2019.’

‘Penetration of electricity for community and local industrial users in the province is non-existent. I believe our project can make good inroads to turn that around along its very long length, over 500 kilometres.

‘We are currently in the pre-front end engineering and design—pre-FEED—stage of the project. We’ve got quality contractors working on the main elements, the upstream processing plant, the gas and condensate export pipelines, and the modular liquefaction facility located near Daru Island.’

A final investment decision is reportedly expected in 2019.

Emmett said much of the upstream processing plant will be built off-site, ‘although we will maximise using PNG contractors and workers during the construction and operating phases of the project.

‘It’s the responsible thing to do and makes good business sense.’

Global demand

Prospects for the LNG market are looking positive. Market research by analysts Wood McKenzie indicates there will be increasing demand for LNG in Indonesia, Malaysia, Vietnam and other countries around the South China Sea.

LNG demand Source: Bloomberg

‘These markets are forecast to grow at about 12 per cent per annum,’ said Emmett. ‘And, of course, the China and India markets are forecast to grow at 6 per cent—probably quite a lot higher than that.

‘By 2035, those markets, according to forecasts, will be approximately the size of the markets today in Japan and Korea—two of today’s LNG giants.’

Emmett said he expected the LNG market to tighten significantly from about 2023, the anticipated start-up time for Western LNG.

Among the project benefits, Emmett said, would be long-term employment and economic opportunities in the province, which is currently heavily reliant on the ageing Ok Tedi mine.

‘It will generate significant tax revenue for the State. Gas will be available for domestic use, saving on imported diesel fuel, which is currently burning up currency reserves.’