The delaying of negotiations over ExxonMobil’s proposed plan to develop the P’nyang gas field has led analyst Fitch Solutions to downgrade Papua New Guinea’s LNG export projections. It has also flagged other LNG-related issues.

ExxonMobil’s operations in Altona, Victoria. Credit: ExxonMobil Australia

Talks between ExxonMobil and the PNG government over the US$9.2 billion (K32 billion) P’nyang development broke down in January of this year. Wapu Sonk, Managing Director of Kumul Petroleum, has told Business Advantage PNG that he expects negotiations to resume mid-year.

This follows last month’s signing of a fiscal agreement over the Papua LNG project, which the developers – Total SA, ExxonMobil and Oil Search – had originally hoped would include P’nyang.

According to Fitch, however, it is not certain that ExxonMobil will be interested in further negotiations over P’nyang, arguing that the fiscal and regulatory conditions for the project need to make economic sense in order to pique the oil major’s interest.

‘The firm’s strategic priorities appear to be shifting away from costly, high-risk fossil fuel projects, and towards higher-value, lower-risk upstream plays and on de-carbonisation efforts,’ a recent Fitch report says.

‘The firm identified projects in the US, Argentina, Canada and Mozambique as being the short-term priorities, indicating that it remains in no rush to resume discussions over P’nyang.’

‘Exxon has already made public the plan to further reduce its capex [capital expenditure] in 2021 by 11–25 per cent, while retaining the flexibility to make further reductions should global oil prices underperform its expectations.

‘In the natural gas and LNG front, the firm identified projects in the US, Argentina, Canada and Mozambique as being the short-term priorities, indicating that it remains in no rush to resume discussions over P’nyang.

‘In addition, even without the P’nyang field, Exxon is a large stakeholder in the Total-led Papua LNG development, and remains in prime position to maintain its large PNG exposure in the coming years.’

Investment destination

The P’nyang project and how it relates to other gas fields in PNG. Credit: Santos

According to the Fitch report, PNG may also not be considered a good investment destination.

‘PNG for all its positives, is still a risky market. It scores poorly in several major risk metrics in the Fitch Solutions Upstream Risk/Reward Index (RRI) well underperforming the regional average scores. It is also a chronic laggard in the Ease Of Doing Business and Corruption Perception Index compiled by the World Bank,’ says the report.

The report describes the progress over the Papua LNG project as ‘smooth sailing’ compared with P’nyang, but says other standalone projects in PNG have hit snags.

‘The revised expectation is for annual growth in exports to average 7.2 per cent over the 2026-2030 period, down from 16.1 per cent previously.’

For example, ‘in October 2020, operator Horizon Oil offloaded its PNG holdings to Australia’s Arran Energy Investments for US$3.5 million (K12.4 million) following a series of legal disputes with the PNG government. Assets divested include the operatorship of PDL 10, which contains Stanley, and stakes in the Elevala and Ketu fields, assets that were earmarked to support Western LNG.

‘Osaka Gas, Horizon’s partner in broader Stanley and Western LNG project, also divested its PNG subsidiary Osaka Gas Niugini to Arran Energy for an undisclosed fee.

‘Arran Energy is a relative junior firm in the LNG space and has no other upstream assets under its portfolio. It is not known whether it is even interested in LNG exports.’

Downgrade

Liquified Natural Gas (LNG) carrier. Credit: DevPolicy

Fitch has revised its forecasts for PNG’s LNG exports, although they are still anticipated to increase sharply over the next decade.

‘Absent contributions from P’nyang, the forecast growth in volumes post-2025 will be much more measured.

‘The revised expectation is for annual growth in exports to average 7.2 per cent over the 2026-2030 period, down from 16.1 per cent previously.

‘The risks to the forecasts are still to the downside, given the early stage of the Papua LNG development and the volatile nature of the domestic project environment.’