Gas projects in Papua New Guinea are extremely viable, despite the downturn in oil and gas prices, the Managing Director of Oil Search, Peter Botten, has told the 2015 PNG Advantage Investment Summit in Brisbane.

A stellar panel discusses PNG’s LNG future at the 2015 PNG Advantage Investment Summit. From left: Andrew Barry (ExxonMobil PNG), Peter Botten (Oil Search), Olivier de Langavant (Total), Mike Fox (Repsol) and Wapu Sonk (NPCP)

With oil and gas prices halving this year, energy companies are thinking really long and hard about what they invest in and how much money they have to invest, Oil Search Managing Director, Peter Botten told the 2015 PNG Advantage Summit. His comments were made during a panel featuring all the major players in PNG’s gas sector: ExxonMobil, Oil Search, Total, Repsol and the National Petroleum Company of PNG.

Quoting analysts, Botten said current LNG prices are between US$7.50-$8.00 per MMBtu (million British Thermal Units)  and, past 2021, it could be in the US$8-10 per MMBtu range.

But PNG is ’lucky’ because ‘many of our projects are still viable in this sort of pricing scenario’, he said.

Review of operations

Botten said Oil Search is reducing its capital costs and putting pressure on suppliers to reduce their costs, as well reviewing its operation to find more efficient ways of getting the barrels of oil and gas out of the ground.

Oil Search has about a US$1.6 billion in liquidity, which meant it could ‘pick up assets that may be sold reasonably–or even companies that may be cheap on the market.’

The Senior Vice-President (Asia) of oil and gas major, Total, Olivier de Langavant, told the PNG Advantage Summit his company was also under pressure, ‘under crisis and have been for the last year. But in the last six weeks the Brent (crude oil price) went down 40%.

‘It is a difficult time for everyone,’ he said adding there was no need to panic, but strong action was needed to reduced operating expenditure.

Despite recent price falls, Oil Search’s Botten said the company has about a US$1.6 billion in liquidity, which meant it could ‘pick up assets that may be sold reasonably–or even companies that may be cheap on the market … We continue to look for that’.

PNG gas valued

Botten went on to say that, because PNG has a large reserve base with a high heating value, its LNG is sought after by the market. Other advantages include having onshore gas (‘generally cheaper’) good infrastructure in the PNG’s Highlands, the Gulf and now Port Moresby, stable government and strong support for the LNG projects.

Botten quoted energy analysts Wood MacKenzie, which reported that PNG ‘ranks extremely well’ against other LNG projects in the Asia-Pacific region.

‘Australian LNG sits at the most expensive end of town in terms of gas delivery into the market and that will cause, in my view, some stress and strain,’ he said.

PNG ‘ranks extremely well’ against other LNG projects in the Asia-Pacific region.

But he also warned of increased competition, and the threat of a more flexible North American gas market, which offers short-term contracts, as well as the traditional medium and long-term contracts.

The world is changing towards a greater level of flexibility, he said, and this means there’s a world market for LNG, rather than a regional market for LNG.

‘The good news is that, although we are oversupplied with LNG and are likely to be for a few more years to come—most analysts say global demand is met until about 2021—but, after 2021/2022 there is a hollow, which is basically an opportunity for new players to come in.’

Few new projects

‘Very, very few projects will get sanctioned in the next 12 to 18 months and, as the lead time to feed that LNG and gas into the market is somewhere between three and five years, we’re very well situated for both the expansion of PNG LNG and [the Total-led] Papua LNG to meet that market.

‘That market has got a large customer base potentially–India, China, the Middle East, south-east Asia and north-east Asia–all growing their uptake up to 2025.’

‘We must work with government to deliver services to landowners otherwise we will not have a business. We’ll have significant delays in our new LNG growth projects and that’s a very bad outcome for us, it’s a very bad outcome for PNG.’

Over the next 12-18 months, Oil Search anticipates its exploration and appraisal program will target between six and seven trillion cubic feet (tcf) of gas, and is also looking to some of its smaller fields and even compressed natural gas (CNG) to provide power for smaller projects in the Gulf and Southern Highlands.

He said it was important to continue to provide services to landowners and local communities.

‘We cannot sit back, as a developer, sit back and watch the pain continue.

‘We must work with government to deliver services to landowners otherwise we will not have a business. We’ll have significant delays in our new LNG growth projects and that’s a very bad outcome for us, it’s a very bad outcome for PNG.’