$14bn PNG LNG expansion hangs by a thread

Esmarie Iannucci | Mining Weekly | 15 August 2019

The share price of ASX-listed Oil Search stumbled on Thursday after the government of Papua New Guinea (PNG) sent a delegation to Singapore seeking to renegotiate the terms of the PNG liquefied natural gas (LNG) agreement, signed in April this year.

Minister for Petroleum Kerenga Kua said on Thursday that the agreement was signed by the previous PNG government, in a period when “serious moves” were being made to remove and replace said government.

He added that the new government took office in May with a firm view that the PNG gas agreement was disadvantageous to the state, and was seeking to renegotiate the deal.

Kua warned that the negotiations could work out “disastrously” but said that the people of PNG had to be ready to accept the outcome.

The efforts to renegotiate the PNG LNG agreement come despite the PNG government’s earlier assurances that it would, in principle, stand behind the signed agreements in the best interest of the State.

At the time, however, the government reserved the right to discuss “a shortlist of matters” with the project proponents.

Oil Search MD Peter Botten on Thursday said that the company was looking forward to gaining further clarity on the PNG government’s position regarding the agreement, which was inked in April this year, and the ways forward for the project.

The April agreement between the PNG government, Oil Search and ExxonMobil, and operator Total SA defined the fiscal framework for the PNG LNG project, and included a domestic market obligation, a deferred payment mechanism for the State’s payment of past costs, and a national content clause to support local workforce development and the involvement of local businesses.

The agreement gave the project proponents the confidence to start the initial work on a $14-billion plan to double the expansion of LNG in PNG to around 16-million tonnes a year.

The expansion plans include three new 2.7-million-tonne-a-year trains at the PNG LNG project, two of which will be operated by Total on its own acreage, while the third will be operated by ExxonMobil and fed from its existing and new gasfield P’nyang.

A final investment decision on the expansion is targeted for 2020. 

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Filed under Financial returns, Papua New Guinea

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