Papua New Guinea Government calls halt to P’nyang LNG negotiations

Welcome,

Papua New Guinea’s Prime Minister James Marape has announced the end of negotiations with ExxonMobil over the P’nyang gas agreement. The project’s developers have responded to his claims that there was ‘an unwillingness to agree to reasonable terms’.

The LNG tanker ‘Papua’ loading at the PNG LNG project’s marine terminal. Credit: ExxonMobil/Richard Dellman

Marape said in a statement that the State Negotiating Team was willing to ‘make significant concessions if ExxonMobil was prepared to do the same.’ But he said that ExxonMobil’s final offer, delivered the day before the final 31 January deadline, ‘contained no such concessions.’

‘The gas belongs to PNG’s people. We are willing to allow international oil companies to develop the field and achieve decent returns by exporting most of the gas, but PNG must also benefit.’

‘The resource size, cost of development and the challenges of operating in Papua New Guinea are very different to other countries, making broad comparisons with State-take under other fiscal regimes in our region misleading.’

‘The terms we proposed to ExxonMobil were fair, ensuring PNG benefits from the project while the international oil companies made decent returns. Our proposals were rejected as these companies tried to extract even more profit for themselves.’

Developers respond

A statement from ExxonMobil expressed disappointment at not being able to reach an agreement.

‘We are hopeful that we can continue to work toward an outcome that benefits all stakeholders,’ it said.

Story continues after advertisment...

‘We are proud of our partnership with the people of Papua New Guinea and have worked to create lasting benefits for the country, including our commitment to energy development, as operator of the US$19 billion PNG LNG Project.’

‘The only way it can go forward is if somebody comes up and is prepared to talk to the government on the terms that the government prefers’

ASX-listed Oil Search is a partner in the P’nyang project. A statement from its CEO Peter Botten questioned the validity of international comparisons when assessing what the PNG government can reasonably expect from a deal.

‘The resource size, cost of development and the challenges of operating in Papua New Guinea are very different to other countries, making broad comparisons with State-take under other fiscal regimes in our region misleading.’

He claimed that the terms proposed by the government would mean the project did not meet the company’s investment hurdles, especially when potential risks are considered.

‘For Oil Search, the project returns under the State’s proposed terms were approximately the same as our cost of capital, on an un-risked basis.’

Supply-demand window

The 8th Prime Minister of PNG, James Marape. Credit: Office of the Prime Minister

The Marape statement indicated that one of its main concerns was that the project might be ‘warehoused [not developed] by ExxonMobil and its partners.

There was also concern about the effect on PNG’s international reputation – that the agreement should become a ‘template’ for development of PNG’s own gas.

Saul Kovanic, Head of Equities Research for Oil and Gas at Credit Suisse, gives some insight into why ExxonMobil and its partners may not have been more willing to give ground in negotiations.

He tells Business Advantage PNG thatglobally, there are ‘competing sequencing priorities for the LNG majors’ pointing to anticipated project sanctions on LNG projects in Qatar and Mozambique that are ‘in the queue ahead of PNG expansion’.

The concern, he believes, is that the market window for new PNG projects may get pushed out past 2028, in which case ‘the appetite to bring on more supply in 2025 becomes increasingly uncertain.’

Can a deal still happen?

Kerenga Kua, Minister for Petroleum

Speaking to ABC Radio’s Pacific Beat, Minister for Petroleum Kerenga Kua confirmed that negotiations with ExxonMobil were ‘at an end.’

‘The only way it can go forward is if somebody comes up and is prepared to talk to the government on the terms that the government prefers,’ he said.

However, he appeared to indicate there was still due process to be followed, and that the Petroleum Advisory Board – the entity established under PNG’s Oil and Gas Act 1998 to evaluate applications for a Petroleum Development Licence [PDL] – would play a role.

‘The negotiations that were carried on were a parallel exercise to see if a gas agreement could be signed off,’ he explained.

‘But that failed but now – I don’t know – somewhere along the way the Petroleum Advisory Board will review to determine the fate of that application [ExxonMobil’s application for a PDL].

‘There’s two ways it can go. One is the application can be granted, in which case we have to find a way to strike an agreement so that the project can go ahead.

‘The other way is that the Petroleum Advisory Board might reject the application. If they do, then all of Exxon’s residual interests [in P’nyang] are extinguished, so the resource will be without its licensee and [it’s] back to the drawing board for the State, to open up conversations with any other interested parties.’

Leave a Reply