LNG project transforms PNG's export performance

DESPITE tough market conditions facing the entire resource sectors, PNG mining and petroleum companies continue to underpin the diversity of the country’s growing economy, writes Greg Anderson, who is executive director of Papua New Guinea’s Chamber of Mines and Petroleum.
LNG project transforms PNG's export performance LNG project transforms PNG's export performance LNG project transforms PNG's export performance LNG project transforms PNG's export performance LNG project transforms PNG's export performance

Staff Reporter

When crude oil prices began a steep decline in December 2014 no one anticipated it would drop below the $US30 a barrel level, as it has done in January this year.

With excess world supplies, prices will remain depressed at least for the first half of this year. This is a tough environment for companies producing crude oil and natural gas.

The PNG LNG project, however, is doing relatively well because of its low-cost structure and its big success last year in lifting production to an average of 7.4 million tonnes per annum, 7% above nameplate capacity of 6.9Mtpa.

The national government's 2016 budget forecast that direct corporate tax from the entire resources sector would total K260 million this year compared with K1.9 billion in 2011.

This does not take into account business and taxes generated through the many providers of goods and services to the resources sector.

Oil and gas majors are making significant cuts to operating, capital and exploration expenses and much of the activity of the junior explorers has come to a standstill.

Nevertheless, national government statistics point to the continuing importance of mining, and oil and gas companies to the overall economy.

LNG has overtaken gold exports, traditionally PNG's top export, since the September quarter of 2014. As long anticipated, the LNG project has taken the PNG economy to a new level. According the PNG Treasury Department, LNG exports were valued at K6.3 billion (gold - K5.46 billion) with associated condensate sales worth K1.38 billion in PNG.

As a result, total PNG exports soared from K13.3 billion in 2013 to K21.6 billion in 2014. According to data from the Bank of Papua New Guinea (BPNG), LNG exports by the September quarter last year were already valued at K7.59 billion with condensate sales worth an additional K1.16 billion, taking total PNG exports to K17.5 billion.

When the BPNG publishes its 2015 year-end figures, PNG export revenues are likely to hit another record high even though crude oil and LNG prices are much lower than they were when LNG exports commenced in May 2014.

In 2014 total mineral exports - gold, copper, nickel and cobalt - was worth K7.97 billion or just a little more than the value of LNG and condensate exports.

That picture changed last year when mineral export revenues in the nine months to September totalled K5.33 billion versus K7.59 billion for LNG and an additional K1.16 billion from condensate.

By contrast, PNG's mining sector has been doing it really tough. The Ok Tedi mine will resume operations in March after it was shut down temporarily as a result of the El Nino induced drought; the Porgera mine saw a sharp fall in gold production in the December quarter with mill operations impacted by the drought.

The brightest spot in the mining arena has been the significant cost reductions that have occurred at Lihir, where all-in sustaining costs for gold production has been reduced by 19% to $US803 an ounce.

After many years as a relatively high cost operation, Newcrest CEO Sandeep Biswas has seen success flow from a number of initiatives to improve productivity.

By the end of December, plant throughput passed the 12Mtpa target and Newcrest has set its sights on 13 million tonnes and further cost reductions. Since the mining took a tumble in 2011 several thousand jobs have been cut to keep operations sustainable. Unfortunately, gold, copper and nickel prices remain somewhat depressed.

In January, copper fell to a low of $US1.94 a pound, its lowest level since April 2009, and nickel has dropped to a 12-year low. Because of global economic uncertainty gold has recovered a little, to about $US1,210 an ounce compared with previous highs of $US1,900.

When Ok Tedi restarts, it will still be operating in a difficult financial environment. Among the operational changes being implemented are the adoption of a fly-in, fly-out roster, workforce restructuring and further job cuts.

The Tabubil International School will not be reopened as a private school. Overall, despite these ongoing challenges, the mining sector's contribution to the economy should improve in 2016 with recommencement of Ok Tedi, possibly better gold production at both Porgera and Lihir, and nameplate production at Ramu nickel-cobalt project.



Most read Oil & Gas

Most read Oil & Gas