Powering up PNG's future

THE growth of Papua New Guinea’s oil and gas industry has been meteoric to say the least and is poised to fuel a major boost to the country’s economy.
Powering up PNG's future Powering up PNG's future Powering up PNG's future Powering up PNG's future Powering up PNG's future

Published in the April 2011 PNG Report magazine

Much of this increase has been sparked by ExxonMobil and Oil Search's decision in 2007 to turn their attention from trying to sell gas to Australia via a subsea pipeline to focusing on liquefied natural gas exports.

While a conservative project compared to some of its peers that have been proposed across the region - like coal seam gas-to-LNG and floating LNG - PNG LNG benefits from having an experienced operator with a track record of successfully developing major projects, in the form of ExxonMobil, and proved gas reserves held by the partners including Oil Search.

The $15 billion PNG LNG project alone is expected to boost PNG's gross domestic product by 20-25% once production starts, according to documents released by the PNG Treasury.

PNG LNG is expected to make such an impact on the country that its Budget Strategy Paper released in November 2010 was described as being powered by LNG.

PNG Treasury and Finance Minister Peter O'Neill said construction of the PNG LNG would have a big impact on the PNG economy, driving a 6% growth in the country's economy this year.

The project is also expected to create a large number of jobs, with employment expected to peak at 12,000 workers, though just a third are expected to be locals.

That said, the PNG LNG project partners have taken steps to maximise the amount of local labour that will be employed, setting up the Port Moresby Construction Training Facility to train up to 4000 local workers for employment during the four-year construction phase of the PNG LNG project.

Labour is also expected to be less of a concern compared to Australian projects, with Oil Search managing director Peter Botten telling the Excellence in Oil & Gas conference in Sydney on March 2 that it existed in a different environment to Australia.

He said subject to taking up as many Papua New Guineans as possible, including draining the existing skilled labour pool in the country, PNG LNG could then bring in skilled labour from around the world.

"We don't therefore have the same constraint as some of our Australian peer groups in building these projects, and probably don't have the same cost pressures that undoubtedly a number of them are facing now," he said.

This has been corroborated by Macquarie Private Wealth, which said while operating in the PNG highlands brought its own set of challenges, PNG LNG did not face the labour shortages and powerful unions that could hamper progress in rival Australian projects.

It added that PNG LNG enjoyed superior economics that place it in a better position to absorb cost overruns and schedule slippage.

Botten also believes that while the joint venture has a strong resource to work from, much upside still remains to underpin additional expansions at PNG LNG, which he added had space for as many as eight trains.

He said the JV had a two-pronged strategy to convert its proved, probable and possible (3P) and proved and probable (2P) resources into proved (1P) contractible gas for the expansions.

These include work on the existing PNG LNG gas fields, where there is substantial upside, and further exploration offshore in the under-explored Gulf of Papua, where Oil Search has secured significant equity.

"If you look at ... associated gas fields which we operate, still have a lot of upside gas and with gas preservation, further production information etcetera, we anticipate further gas being contributed from the oil fields into PNG LNG. And that is a cheap and easy way to prove up further 1P resources," Botten said.

These include the Hides field, which has 3P gas reserves of about 10 trillion cubic feet of gas and could hold additional upside as the company is yet to find the hydrocarbon/water contact at the field.

"We have a pretty good address up there and a very high success rate," Botten said.

Speaking on the Gulf of Papua, Botten said the company was focused on shooting modern 3D seismic that had not previously been introduced to PNG to prove up a number of prospects and this together with Oil Search's option to take up to 70-80% of the offshore licences would allow the company to introduce a potential LNG partner sometime later this year.

Of course, the PNG LNG partners are not the only players in PNG.

InterOil has had strong successes with the Elk and Antelope wells in the Gulf Province and has two separate LNG projects planned.

Should these efforts come to pass, they would further boost the PNG economy in a way similar to PNG LNG.

Canadian independent Talisman Energy has also been keeping itself busy.

The company went on an aggressive land grab in PNG last year that gave it stakes in 12 blocks covering more than 3.64 million hectares, and is now embarking on an aggressive five well drilling program after two wells drilled late last year found gas with associated condensate.

Talisman said in December last year its experience in managing shale gas operations in remote parts of the world would be invaluable in PNG's challenging environment.

It is targeting 250 million barrels of oil equivalent in its Western Province permits, though it maintains it is not competing with the big players in PNG.

While the company could conceivably build its own onshore LNG plant, it is also working on a gas aggregation strategy, which is believed to include partners like Horizon Oil and possibly New Guinea Energy, to support an LNG train at one of the two other LNG projects.

It has also flagged the possibility of using gas-to-liquids to commercialise its gas resources.

Also making waves in the LNG sector is floating liquefied natural gas proponent Flex LNG, which has started field specific front-end engineering and design for a FLNG project as it tries to play catch-up to Shell, which committed to the Prelude FLNG project in early May.

The field specific FEED work comes six weeks after Flex secured agreements with InterOil, Pacific LNG, Liquid Niugini Gas and Samsung Heavy Industries for a FLNG project that would liquefy natural gas from the onshore Elk and Antelope gas fields and follows on from a generic FEED completed in 2009.

FEED is scheduled to be completed in time for the project to reach a final investment decision at the end of the year with Flex remaining confident it will be able to beat Shell to the gates, with first production targeted for 2014. Shell is targeting first gas for Prelude in 2016.

Beyond the Talisman and Flex joint ventures, junior players in PNG have also been pushing ahead with their plans.

New Guinea Energy has brought in a helicopter-portable drilling rig for use in its PNG operations, while unlisted Newport Energy is looking for funds to shoot seismic over its 100%-owned PPL 326.

Meanwhile, Horizon Oil has acquired Elevala Energy's 10% stake in PRL 21, increasing its stake in the onshore PNG permit to 45%, and is planning to drill the Elevala-2 and Ketu-2 wells there.

However, new entrants may find it hard to enter the country, with Botten noting that while PNG is a "very actively explored area right now", it is also highly sought after and difficult to get acreage.

While PNG LNG and other petroleum projects will provide an opportunity for PNG to raise long-term growth and living standards, concerns have being raised about the PNG government's ability to manage the massive windfall.

Global accountancy firm Deloitte Touche Tohmatsu said in November last year that while the government had taken steps to improve accountability in trust funds set up to handle the funds, they remained a "serious concern".

The IMF was more positive, saying PNG's decision to manage all resource revenues through a sovereign wealth fund should mirror the success other countries have had in managing the volatility of mineral revenues and containing real exchange rate appreciation, improving transparency, accountability and good governance.

Operators in PNG also continue to face issues with landowners with the latest incidents resulting in three injured PNG LNG workers and a blockade at the road leading to the Hides project area.


Most read Regions

  • NEW: Digital version of PNG Report magazine - View here
  • Porgera: Barrick-PNG talks go on - Read more
  • Follow the companies investing in the PNG market - Read more

Most read Regions