Focus moves to P’nyang agreement after government endorsement of Papua LNG

Welcome,

After the government’s endorsement of the Papua LNG Gas Agreement in September, attention has shifted to achieving a deal for the P’nyang gas project. Its developers see its pending approval as a prerequisite for the commencement of Papua LNG.

The proposed expansion of the LNG Plant at Caution Bay, including three new LNG trains. One of these will accommodate new gas from P’nyang and the existing Hides field; the other two will be for the Papua LNG project. Source: Oil Search

Focus moves to P’nyang agreement after government endorsement of Papua LNG

The next gas project off the rank in Papua New Guinea is based on the P’nyang field in Western Province, which sits around 130 km northwest of the Hides gas field, source of the gas for ExxonMobil-led PNG LNG project. Its proximity to Hides makes it suitable for sharing existing LNG infrastructure.

The principal beneficiaries of the P’nyang project will be Oil Search (36.9 per cent) and ExxonMobil (36.9 per cent). Santos has also announced it will purchase 14.3 per cent share for US$187 million (K636.8 million). The Santos acquisition values the Petroleum Retention Licence 3 (PRL 3), which includes the P’nyang field, at US$1.3 billion (K4.43 billion).

According to a statement from Oil Search, discussions between the National Government and ExxonMobil, the operator of P’nyang, will recommence ‘shortly’.

‘There are reports that the Petroleum Minister, Kerenga Kua, will press ExxonMobil for ‘far better’ terms.’

‘Commercial agreements on the integration of Papua LNG and PNG LNG are essentially finalised,’ the Oil Search statement says. ‘(It is) ready for execution, and the P’nyang LOI (Letter of Intent) is signed with Santos.’

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While the commercial agreements are ready, work won’t begin until there is an agreement in place with the PNG Government for P’nyang.

‘The Papua LNG and P’nyang Gas Agreements are key prerequisites for launching the FEED (Front End Engineering Design) phase of the proposed three-train LNG development.’

It is evident that the Papua LNG project and the P’nyang projects are considered to be inter-related for the major players, with the latter involving lower risk and high profitability.

A statement from Total, described the Papua LNG project as having ‘high well productivity’. But it also points to the importance of P’nyang, which it describes as a ‘low cost brownfield extension project’ that will maximise synergies with PNG LNG.

The statement says that the three trains will each produce 2.7 million tonnes per year: two for Papua LNG and one for PNG LNG. A major benefit of the share infrastructure will be lower shipping costs

Better terms?

Fat Prophets’ David Lennox Source: BAI

There are reports that the Petroleum Minister, Kerenga Kua, will press ExxonMobil for ‘far better’ terms on the P’nyang project than the government secured with Total over the Papua LNG project.

David Lennox of resources analysts Fat Prophets tells Business Advantage PNG that the next round of agreements will ‘perhaps have less going to the central government and more going back to the local government’.

‘I think they will be anxious to push ahead. They certainly want to utilise any of the gas that is in the region. There is enough to do another train—and other regions as well.

Winners

Lennox says ExxonMobil and Oil Search will be ‘the winners’ from a third train. ‘They have got long-term projects locked away. They will easily have other parties interested in off-takes from the third train.’

Lennox says Oil Search will be ‘very comfortable’ to run a third train. He adds that it is possible the company could ‘up its exposure’ to the project.

‘The PNG Government has got the facility there, but the divvying up of the pie hasn’t been precisely the way everybody wanted it.’

‘I think their balance sheet is in a reasonably good state and they could probably take a bit more.

‘They know the fields, they know the gas feeds into it, they know the gas, they know everything. They have the gas they need. They just don’t have the ability to ship it.’

Pie

PNG LNG Contracts Source: Oil Search

Lennox says the long term prognosis for LNG is good, provided that ‘Asia continues to have energy needs’.

He says population growth in the region should ensure rising demand. ‘China is so big even if it population slows somewhat you are still adding millions of people.

Oil Search estimates that LNG demand will grow at 4.5 per cent a year to 2030.

‘The PNG government has got the facility there, but the divvying up of the pie hasn’t been precisely the way everybody wanted it.

‘But if they do a better job of distribution there will be far more acceptance of a third train. You would hope that they have learned from the first time round.’

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