The rising oil price will have a significant impact on Papua New Guinea this year, according to the Country Manager and Director for Puma Energy, Hulala Tokome.

Fuel price rises in PNG are inevitable this year, according to Puma Energy’s Hulala Tokome. Credit: Puma Energy

This week, the price of the benchmark Brent Crude Oil went over US$100 (K354) a barrel for the first time since August 2014.

‘The movement up in oil prices is being felt around the world,’ observes Hulala Tokome, PNG Country Manager and Director at Puma Energy, PNG’s largest oil importer and refiner.

There are several reasons behind the price rise, he says. The most obvious is the increased global uncertainty caused by Russia’s invasion of Ukraine.

But, as he told a special Business Advantage PNG live-streamed event, ‘PNG Boardroom‘, earlier this month, there were already pre-existing upward pressures on the oil price before the current conflict.

Oil prices have risen markedly in recent times. Credit: Oilprice.com

‘It’s also not good for us because we’re not able to get the FX that is required in the market in order to pay for our crude supplies.’

‘The physical market is tight, as stocks of crude and diesel are drawn to the lows of the seasonal range, and OPEC continues to underperform against its crude production quotas, adding to tight supply.

‘What’s also been evident is that the rapid decline in COVID cases is leading to strong pent-up demand. Crude [oil] production below expectations will continue to drive prices higher in the long term.’

Tokome says Puma expects the oil price to continue its rise this year, driving up the price not only of petrol and diesel in PNG, but also aviation fuel.

‘Locally, we’ve seen the price of fuel jump up by nearly 50 toea per litre just over the last couple of months,’ he says. ‘It is most likely it will jump up by another 15 to 20 toea per litre in March again.

‘For the average consumer, for the businesses who depend a lot on our fuel, it’s not good.’

‘Critical’ FX issues

Puma Energy’s Hulala Tokome

Tokome also says the ongoing shortage of foreign exchange (FX) in PNG creates an additional headache for Puma Energy, which runs PNG’s only oil refinery (at Napa Napa outside Port Moresby) and is one of PNG’s largest purchasers of foreign exchange.

‘It’s also not good for us because we’re not able to get the FX that is required in the market in order to pay for our crude supplies.

‘It is having a huge impact on our business. We can’t continue to sustain our business operations if we’re not able to pay for the crude that we thought we’d bring in to refine.

‘We’re at a critical point right now.’

Tokome says the fuel company will be making some ‘critical decisions’ shortly about how to handle the issue.

One option, to cut back on how much oil Puma brings into PNG, could prove counter-productuve.

‘We wouldn’t want to go down that particular path. You know, we want to make sure that we continue to maintain supply in country … we’ve been heavily engaged with all stakeholders in the market in terms of being able to make that happen.’

Impact on LNG

With Russia supplying 38 per cent of the European Union’s gas market, the invasion of Ukraine also may have consequences for liquefied natural gas, PNG’s largest commodity export.

Analysts Wood Mackenzie are predicting, ‘the invasion … will push the EU to question its dependency on Russian gas. New supply will take time to materialise and will see higher prices in the medium term. But LNG players in the US, Qatar and beyond are starting to gear up; as are pipe suppliers from Azerbaijan, the East Med and Norway.’

Given its distance from the EU and that fact that most of its current gas is pre-sold to Asian markets, it is unlikely that PNG will suddenly find itself shipping gas to Europe. However, as David Lennox, Resources Analyst with Fat Prophets tells Business Advantage PNG, the impact of an extended conflict in the Ukraine could indirectly affect PNG’s gas sector.

A higher gas price, if sustained, would inevitably ‘bring about the faster development of not-so-commercially-viable fields and trains,’ he says. At the same time, if the EU switches from Russia to other large gas exporters such as Qatar, ‘this opens up other markets [such as PNG] to increase capacity’.

‘Stronger global prices for oil and LNG, will mean more revenues for Government,’ observed Kina Bank in a note on the Ukraine crisis issued this week. ‘However … we anticipate that inflation may be higher than originally planned.’