The final investment decision for the TotalEnergies-led Papua LNG project, which would spark a fresh investment boom in Papua New Guinea, still faces significant hurdles, as growing environmental activism makes finance harder to arrange and international energy projects compete for scarce construction resources. Tony Jordan reports.

The Papua LNG venture partners, represented at this week’s 2023 PNG Resources and Energy Investment Conference by (from left) Santos’ Brett Darley, TotalEnergies E&P PNG’s Thomas Maurisse, ExxonMobil PNG’s Tera Shandro and Kumul Petroleum Holdings’ Wapu Sonk. Credit: BAI

Just days after the first contracts for initial construction works on the Papua LNG gas project were announced, PNG’s Minister for Petroleum and Energy warned that the crucial final investment decision for the US$10 billion project may be delayed until later in 2024.

The TotalEnergies-led Papua LNG project will face challenges in 2024, including a potential delay to its final investment decision (FID) and higher costs associated with construction, due to overlapping demand from rival projects overseas, Petroleum and Energy Minister Kerenga Kua said at the PNG Resources and Energy Investment Conference in Sydney on Tuesday.

‘Our original plan has been to move into FID towards the end of early second quarter next year,’ he said in a speech at the conference. ‘But, depending on how we manage these issues, if there’s a slight delay to move the FID to a later part of next year, always keep that in your contemplations and your planning.’

‘Recently I have been on the road looking for money but, you know, I am getting knocked back basically, every door that I try to open’

PNG’s business community has been counting on a boost from the FID next year, with companies preparing to ramp up hiring and investment to meet an expected flood of demand for workers and equipment during Papua LNG’s four-year construction phase. It is expected provide 10,000 to 12,000 jobs during the peak of its construction phase.

‘As the project moves into the construction phase, there are many other similar projects around the world also moving into construction, which has an impact on the contractors that are available to support us,’ Kua said. ‘We should be flexible to accommodate that so that we do this project properly.’

‘It is a big project,’ said Kerenga Kua, who expressed confidence FID would be achieved in 2024. ‘It needs all of us to stand together, work together and we can deliver on that project.’

‘Times have changed’

PNG’s Petroleum & Energy Minister, Kerenga Kua. Credit: BAI

Fossil-fuel funding is coming under greater scrutiny because of global efforts to combat climate change, with many lenders now embracing the Equator Principles when considering finance for carbon-positive projects. World leaders meeting this week in Dubai are nearing an agreement that could slash emissions, while falling short of calling for the ‘phase out’ of fossil fuels, as many nations have demanded.

Kua said more stringent rules on financing and an increased focus on the environmental impact of large projects like Papua LNG have slowed the approval process, though he remained confident that the project will proceed in 2024.

‘There was a time not long ago when investment undertaken by ExxonMobil or TotalEnergies in a new petroleum project has always been regarded as a blue-chip investment,’ Kua said. ‘Everybody came in to participate either as financiers or contractors of one sort or other. But things have changed significantly in the last 10 years. So right now, we have to deal with climate-change advocates who have been campaigning very vigorously around the world, and it’s also impacted on the ability of the banks to finance a project like this.’

Consultations

With the front-end engineering and design (FEED) phase already underway, Kua expects additional consultations to be held on environmental concerns ahead of a final decision on investment. TotalEnergies has said it plans to use four electrical LNG trains to help reduce the carbon-intensity of the Papua LNG project and is embracing other projects to mitigate the environmental impact of the project.

Kua also acknowledged recent concerns expressed by Gulf Province’s political leaders, including Governor Chris Haiveta over identifying the local beneficiaries for the project.

‘It takes listening to some of these objections,’ he said. ‘That’s one of the challenges you have to walk through, and we trust the leadership of TotalEnergies and we know that they will be able to manoeuvre that through and we will assemble the finances that are necessary to continue with that project to construction.’

State-owned energy company Kumul Petroleum is expected to take up the State’s mandated 20.5 per cent stake in the project and is jointly marketing the project’s gas. Managing Director Wapu Sonk said it is working to bolster its own environmental, social and governance policies to widen the company’s access to future funding.

‘Recently I have been on the road looking for money but, you know, I am getting knocked back basically, every door that I try to open,’ he said. ‘Times have changed.’

First EPC contractor

Plans for initial works on Papua LNG began to take shape last week, with the first engineering, procurement and construction (EPC) contract awarded to Vinci Construction Terrassement SpieCapag Niugini (VCTSC). The company outlined its plans for infrastructure and preparatory works at the first forum for upstream suppliers for the project, held on December 4.

VCTSC is among more than 200 firms vying for Papua LNG contracts as part of Papua LNG, which if completed will become the nation’s second LNG project. According to the project timeline, first gas from Papua LNG is expected to flow in 2028.

VCTSC says it is seeking licensed, skilled workers to fill about 1,000 jobs during the peak of construction activity in 2025. About 15 percent of the planned workforce will be unskilled, and the company has pledged to hire most workers from inside the project’s area of influence, and provide more than 100,000 hours of training.