Papua New Guinea’s oil and gas sector continues to attract new entrants as its ExxonMobil-led PNG LNG liquefied natural gas project moves inexorably towards a production stage.

Aerial photos of ExxonMobil’s LNG plant near Port Moresby in Papua New Guinea, December 2011

Papua New Guinea is highly prospective for oil and gas, with deposits being found across its Highlands provinces, Foreland Basin and even beneath the Gulf of Papua. The most developed of its projects is the massive PNG LNG project led by ExxonMobil, which is expected to begin production in 2014. With development costs for the project totalling $US16.5 billion, it will produce 6.6 million tonnes of LNG per year for end users in Taiwan, Japan and China and will deliver at least nine trillion cubic feet of gas over its 30-year lifetime. Other partners in the project are Australian-listed Oil Search Limited, Santos, Merlin Petroleum, local landowners and the PNG Government, which recently transferred its share in the project to state-owned resources company Petromin.

A 700 km pipeline in being built to carry the gas from the Western Highlands gas fields to an LNG plant near Port Moresby. Work has also begun on the LNG plant, and drilling rigs are being put in place on the Hides, Angore and Juha gas fields.

The PNG LNG partners are doing exploration work to see if they have enough gas reserves to support creating a larger project than originally planned. Oil Search chief executive Peter Botten, who has described 2012 as ‘the year of heavy lifting’ for PNG LNG, has said the consortium will form a preliminary view on whether there is enough gas to expand the project in late 2012 or early 2013.

Giants move in

In a major vote of confidence, the world’s largest oil company, Royal Dutch Shell, recently signed a deal with PNG’s state resources company Petromin as part of a plan to deal itself into the booming gas sector. Shell has not said what its specific aims are but is studying the potential of all the major hydrocarbon basins in PNG.

Shell recently signed a deal with PNG’s state resources company Petromin as part of a plan to deal itself into the booming gas sector

The Gulf LNG project (formerly Liquid Niugini Gas) currently being driven by New York-based InterOil is a potential second LNG project for PNG. Korea Gas (Kogas, the world’s largest gas importer) is a powerful addition to the InterOil camp and is putting together a consortium involving Japanese trading company Mitsui and Japan Petroleum Exploration. InterOil wants equity partners in a $US6 billion LNG production plant, which will liquefy natural gas for export, and is also interested in selling stakes in the Elk and Antelope Gulf Province gas discoveries that will fuel the plant. Mitsui and Kogas initially planned to deal separately with InterOil but the strength of the Asian gas market appears to have encouraged them to join forces so prices would not be pushed unnecessarily high.

Gulf LNG is targeting five million tonnes of LNG production in 2014 with three million tonnes coming from an onshore facility and a million tonnes from a floating plant. Ultimately, production is slated to be 7.6 million tonnes a year at the planned Gulf of Papua production facilities.

In another high-profile move, Japanese giant Mitsubishi has signed a $US280 million farm-in deal with Talisman Energy to develop gas fields in Western Province. The deal will give Mitsubishi a stake of around 20% in an investment covering nine exploration licence areas, leaving Canadian-based Talisman with 40% and the rest of the project with other joint venture partners including Horizon Oil, New Guinea Energy and Kina Petroleum.

Oil and gas drilling is continuing apace outside the three major LNG project areas. At least 10 miners are exploring offshore, and Toronto-listed Eaglewood Energy has hit gas in a drill hole in Western Province. There’s still plenty of untapped potential for the industry, with PNG having an estimated 22.6 trillion cubic feet of gas reserves and more gas and oil being discovered each year.

This article first published in Business Advantage PNG 2012/2013