Papua New Guinea LNG expansion plans in limbo after talks collapse

Sonali Paul | Reuters | February 2, 2020

Plans to double gas exports from Papua New Guinea within the next four years are in doubt after the government walked away from talks with Exxon Mobil Corp on a key gas project needed for the $13 billion expansion.

Papua New Guinea Prime Minister James Marape on Friday called off negotiations with Exxon on the P’nyang field, blaming the energy giant for failing to budge on a proposed deal that was “out of the money.”

The expansion of liquefied natural gas exports is crucial for the impoverished Pacific nation, but is vying with several proposed LNG projects in Australia, Mozambique, Qatar, Russia and the United States.

One of Exxon’s partners in the PNG project, Oil Search Ltd , said on Monday the terms the government had sought would have made the project unprofitable.

“Under the terms proposed by the State, the joint venture partners were unable to obtain a return on their investment that made the project investable and bankable,” Oil Search said in a statement to the Australian stock exchange.

Shares in Oil Search fell as much as 11.5% early on Monday in their first session since the collapse of the talks, on track for their worst one-day fall in more than four years.

The P’nyang agreement was one of two agreements needed for Exxon and its partners to go ahead with a $13 billion plan to double LNG exports from the Pacific nation. The other agreement, the Papua LNG pact, was sealed with France’s Total SA in September.

The government was seeking terms on P’nyang that would give the state more than the 45%-50% take that PNG is set to reap on the returns from the Papua LNG project, and well above the terms Exxon negotiated in 2008 for its PNG LNG project, a person close to the negotiations said.

P’nyang and Total’s Papua LNG project were designed to feed three new processing units, called trains, at Exxon’s PNG LNG plant, with the two projects sharing infrastructure in order to save $2 billion to $3 billion dollars on construction costs.

Oil Search said on Monday it would now focus its attention on the Papua LNG project, which will feed two new trains, adding 5.5 million tonnes per annum (mtpa) to the plant’s 8 mtpa capacity. Joint venture partners are set to meet “in the short term” to plan their next steps, it said.

Bank of America analysts estimated that separating the projects would pare the cost savings by a third and delay first production from Papua LNG by 18 months to 2026.

“The two projects are rather entwined. There’s a bit of uncertainty now. Everything’s going to be delayed for quite a period of time,” said Andy Forster, senior investment officer at Argo Investments, which owns Oil Search shares.

Exxon Chief Executive Darren Woods said on Friday the company hoped to revive talks on P’nyang to get to a “win-win proposition” but flagged that the company was in no hurry as it had other projects it could advance elsewhere.

“But I also think we’ve got some time given all the other opportunities in front of us and, frankly, given where we’re at today in the supply-demand balance of LNG,” Woods told analysts on the company’s quarterly earnings call last Friday.

A global glut of LNG has driven spot LNG prices to more than 10-year lows below $4 per million BTUs (mmBTU), posing challenges for projects looking to line up long-term customers.

PNG Prime minister James Marape, who came to power last May on a pledge to reap more benefits from the country’s abundant mineral and energy resources, on Sunday said he was comfortable with the hard line he had taken.

“I am sorry but if you show little respect to our motive to gain extra for the country, you will lose my support,” Marape said in a post on Facebook.

Total has made no comment on the collapse of the P’nyang talks.

1 Comment

Filed under Financial returns, Papua New Guinea

One response to “Papua New Guinea LNG expansion plans in limbo after talks collapse

  1. IT is always , “ABOUT THE MONEY.” Too bad the people were sold a bill of goods on underwater mining : no chemicals, sediment returned , to the ocean bottom by gravity , five miles off the coast.
    The first full-scale deep ocean mining project is being run by Canada-based Nautilus Minerals Inc., which is negotiating to mine an area about 5,249 feet deep off Papua, New Guinea, and hopes to be operating by 2011 or 2012.Nautilus’ Johnston said his company hired consultants to examine the potential effect of a mining plume. They found that it would sit not more than 300 meters above the ocean floor, and that most of the mine’s plume would settle within a hundred meters from the mine site.

    “ Its equipment is tailored to the mining of deep sea hydrothermal vents which the world now agrees are too ecologically valuable to mine,” Deep Sea Mining Campaign’s (DSMC) Andy Whitmore, said in a statement. WHAT WOUKD HAVE HAPENED IF THE EXOERIMENT WAS TRIED AND IT HAD A ZERO EFFECT , RIGHT NOW , CHICKEN LITTLE IS SELLIN STEEL UMBRELLAS TO PROTECT PEOPLE FROM THE SKY FALLING .

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