Death knell for Australian pipeline heralds bonanza for PNG

I AM feeling mighty pleased with my crystal ball this morning following news from Oil Search that the project to pipe natural gas from Papua New Guinea to Australia has been killed off. By Brian Gomez
Death knell for Australian pipeline heralds bonanza for PNG
Death knell for Australian pipeline heralds bonanza for PNG
Death knell for Australian pipeline heralds bonanza for PNG
Death knell for Australian pipeline heralds bonanza for PNG
Death knell for Australian pipeline heralds bonanza for PNG

It was two columns ago that I suggested that the pipeline was virtually dead and that an announcement was likely shortly. Also that from a PNG perspective, there were better spin-offs for local processing of the gas.

In last week’s column I took this argument a step further by suggesting that selling PNG gas into Australia could arguably be seen as giving a competitive edge to industries in that country to the detriment of opportunities in PNG. Hence the headline, “Could the gas pipeline be against PNG’s national interest?”

Oil Search managing director Peter Botten has confirmed that the decade-long pursuit of the gas market in Australia has come to an end even though construction of the revised supply route has proved to be a viable proposition.

But Botten told analysts it was hard to justify selling gas to Australia when domestic processing for an LNG export project and for manufacture of petrochemicals and other industries would provide much better returns.

The problem with the Australian market was that prices were much lower than world prices because of competition from local sources of natural gas, coal seam methane and coal-fired electricity.

Because gas pricing in PNG would be linked to world market levels, LNG would provide the best returns with sales of gas to petrochemical companies better than piping of the gas to Australia.

Botten also said that the larger the LNG development, the more attractive it becomes and, for this reason, consideration was being given for the Kutubu and Juha joint venture partners to join an LNG project being proposed by ExxonMobil. The latter is based on reserves at Hides and the nearby Angore fields.

If this happened, gas for the two petrochemical projects to be built in Port

Moresby by 2011 would come from other fields such as Barikewa and Kimu.

Botten conceded that for strategic reasons, such as “not putting all the eggs in one basket”, there may be a case for construction of separate LNG plants. Discussions are ongoing with British Gas for a 3-4 million tonne a year plant that will be evaluated against the ExxonMobil proposal.

He conceded that such a scenario was not possible even two years ago and the markets appear in agreement, with Oil Search share prices up this morning by 2c at $A3.54. Two years ago such an announcement would have caused the stock to plummet, possibly to half its current level.

It is amazing but true to state that Australia’s loss is PNG’s gain. In order to break into the Australian market, there were suggestions that the gas consortium was offering such low prices that this would provide a massive boost to industry in Queensland with very little spin-off benefits in PNG.

The massive investments in new ventures in PNG would help modernise that country’s economy and to create many thousands of skilled jobs.

Botten had already signalled in his quarterly report that selling gas to

Australia had become the second-best option, and the latest announcement would be music to the ears of PNG politicians.

They have been used over the years to complaints about PNG being a place with “high risks”, which unfortunately continues to be a familiar tune sung by Australian Foreign Minister Alexander Downer and his Canberra bureaucrats.

But in the last four years at least PNG has begun to earn its place in the sun, so to speak.

It is not without reason that this column has generally been positive about the unfolding PNG story!

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