Conservative PNG forecasts underplay continuing revenue surge

The PNG Treasury has adopted extremely conservative forecasts for the mining and oil sectors. By Brian Gomez

In stark contrast to the likely reality, it anticipates mining and oil export revenues will decline from a record K12.6 billion this year to just over K9 billion in five years time.

In one sense this is probably good since it will lessen the likelihood of fortunes being spent before they are earned, one of the causes of the economically woeful 1990s.

Treasury’s recent report, ‘Economic and Development Policies’, anticipates a significant boost in mineral production next year from rising output at Lihir, Porgera and Ok Tedi, along with production from Sinivit and Simberi.

But even though Ramu Nickel should start production in 2010, it expects mineral revenues to decline “with the winding down of some major mining projects”.

The only potential closure planned is that of Ok Tedi in 2013 although a prefeasibility study has begun on a large underground resource.

Treasury is projecting that gold exports will hit a peak of K5.14 billion in 2011 after rising above K5 billion for the first time this year.

Mind you its forecasts are based on an average US$662 an ounce this year, a figure also used to project revenues up to 2012 even though current gold prices are above US$800.

The recently-empowered Mineral Resources Authority, while being a little diffident about forecasting gold revenues, is officially projecting that gold production should rise from around 2.3 million ounces this year to about 3-3.5Moz respectively in 2010 and 2012.

Despite the impending demise of Ok Tedi, MRA is predicting copper production, now around 200,000 tonnes a year, should peak at more than 500,000t in 2012 and remain at that level for several more years.

Contrary to the Treasury viewpoint, mining will remain quite robust because in that timeframe PNG will also be a significant producer of nickel and cobalt, and possibly molybdenum.

And, yes, it is good policy not to count one’s chickens before they are hatched because a steep plunge in copper prices could easily delay new mines from taking off especially when they cost US$1 billion apiece.

PNG Treasury has more reason to be gloomy about oil production, where output has plunged from 140,000 barrels per day in 1993 to current levels of around 50,000bpd.

No significant oil finds have been made in recent times.

It has been prudent for Treasury to take a cautious view of multi-billion dollar liquefied natural gas projects being proposed although the scale of PNG gas reserves, and ever-expanding world demand, places a high probability on early development.

Even if the ExxonMobil-led LNG venture does not go ahead in this timeframe, there is every likelihood that liquids recycling would take place at Hides, which holds at least 200 million barrels of petroleum liquids or more than any discovery since the big Kutubu oil find.

And the conservative Treasury economists are forecasting that prices for Kutubu crude, which fetches a premium to Malaysia’s benchmark Tapis crude, is forecasting that prices this year will average US$67.30 a barrel.

It projects small declines thereafter annually until we get down to US$59 a barrel in 2012.

In fact, prices for PNG crude averaged US$73.75 in the nine months to September and have strengthened even more since then, with world prices breaking through the US$100 a barrel barrier.

So, one way or another, PNG export revenues will remain buoyant and, indeed, big budget surpluses and supplementary budgets could be the norm for a few more years.

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