Tag Archives: LNG

LNG landowner frustrations rising again in PNG

Hides landowners met several times with the government to discuss outstanding LNG Project payments. Photo: Supplied

Radio New Zealand | 21 March 2017

Papua New Guinea’s major LNG Liquefied Natural Gas or LNG project could be shut down again due to simmering landowner frustrations.

Landowners in the Highlands province of Hela say the government has let them down again by not following through on promised benefits from the multi-billion dollar gas project.

The landowners mounted a protest blockade of the project’s conditioning plant in Hides last August.

In response the government signed an agreement to address landowners’ grievances over lack of benefits and equity arrangements within thirty days

Hides landowner representative Andy Hamaga said government did not honour their promise.

“Unfortunately to date they haven’t done anything. We are looking at options, whether to take them to court, or go with the national arbitration, or go go back again and shut down the whole (LNG Project) operations before the general election,” he said.

At the time of last year’s blockade of the LNG plant, in response the government said the delays in royalty payments to landowners were due to complications over identifying genuine landowners.

The Petroleum and Energy minister Nixon Duban said that it was in the best interests of Hela to ensure that the right beneficiaries would be getting the payments.

“This project is going to be here for a long time,” Mr Duban explained at the time.

“We cannot make a mess and pay the wrong people. And so the onus is on the state to ensure it’s done properly. Whether we take one year or a couple of months, we must ensure it is done properly.”

However, Mr Hamaga said this was misleading.

“The state minister is not giving us the actual information,” he said.

“They were supposed to do this clan vetting and landowner social mapping thing before we signed the big Umbrella Benefit Agreement we have signed in 2009. I think they’re using this one as an excuse.”

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How the free market failed Australia and priced them out of their own gas supply

While Asia is enjoying low prices for Australian gas, back home things are getting worse. (Origin Energy)

Ian Verrender | Business Editor | ABC News

Fashion has a habit of turning full circle.

Remember that old shirt, the super tight one with the stretchy material and weird collar that you found at the bottom of the wardrobe? What on Earth possessed you to buy it, you wonder. What were you thinking?

For anyone who lived through the ’70s, the memories of those fashion crimes often come back to haunt us.

It was also an era when free market ideology began to assert itself in public policy. And with good reason.

Government-run businesses were inefficient, bloated and bureaucratic. Letting them loose would free up scarce public funds, competition would lower prices and scarce resources would be allocated with the greatest efficiency.

When Margaret Thatcher came to power in the UK in the 1980s, she unleashed a wave of privatisations that transformed the economy and contributed to decades of economic growth.

It didn’t take long for the fad to gain ground here. Government-owned businesses from airlines to banks and insurance companies were jettisoned.

Even vital infrastructure like roads, telecommunications and power generators were flogged to the highest bidder with little thought about the long-term consequences.

But have we gone too far? Free market theory, while it’s terrific in theory, has some almighty shortcomings and, as we now are discovering, may not be the economic cure-all we once imagined.

Suddenly, the winds have shifted. Business leaders talk in hushed tones, openly uttering a phrase once considered unmentionable: market failure.

In the past few days, there has even been a call for part nationalisation of our energy industry from a free market wheeler dealer. More on that later.

A fortnight ago, competition chief Rod Sims let fly with his annual swipe at the fee-gouging taking place at our airports.

Airlines and the travelling public were forking out an extra and largely unnecessary $1.6 billion in fees.

What’s going on with gas?

The problems arise when the business being sold is a monopoly, when the buyer, having paid an exorbitant price, is given carte blanche to extract its tonne of flesh. The benefits flow from the community to private interests, often offshore.

Generally, we’re talking about utilities — things like power companies, for instance. And then there is gas.

For years, electricity and gas operated independently. But the two have become intertwined as the shift towards a cleaner environment and lower emissions has thrust gas firmly into the box seat as the transition fuel to generate electricity.

We’ve suddenly discovered, however, we don’t have enough. It’s no exaggeration to describe the power situation now facing eastern Australia on both fronts as a catastrophe. And here’s why.

Within the next four years, Australia will overtake Qatar as the world’s biggest supplier of gas. We are sitting on vast gas reserves. In fact, we’re swimming in the stuff.

And yet, we face critical shortages at home which could starve manufacturers of fuel, see power outages across the eastern states and force energy prices through the roof while any profits that are made will be shipped offshore.

This is a public policy fail of epic proportions.

And it’s worth getting a handle on how it all came about and the shenanigans employed by the gas majors that have deliberately created this crisis and the supposed shortage which is a total con.

How could this happen?

First, however, consider this: the gas we are exporting does not belong to the energy giants. It belongs to us.

Companies like Woodside, Origin and Santos and their foreign partners merely have bought the right to exploit those gas reserves, which was supposed to lead to massive benefits for ordinary Australians.

Here’s the scorecard so far. Having spent close to $250 billion building new export facilities, no-one seemed to think that flooding the globe with extra energy would see global prices drop.

They have. Gas prices into Asia, where we export, have now dropped below what it costs to extract, process and ship the stuff. In fact, the east coast suppliers so far have written off around $6 billion on their new plants.

It gets worse. Extracting the gas from coal seams in Queensland was a little more problematic than originally thought. Then farmers, incensed at the activity taking place on rich agricultural land, began shutting the gates.

That meant the companies couldn’t get enough to satisfy the huge supply contracts they’d written in Japan, South Korea and China. So they plundered the supplies, much of it from Bass Strait, that once powered the domestic market. That’s why we have an artificial shortage.

But wait, there’s more. No-one ever considered that once we were plugged into the global market, we’d be paying global prices. Around the time all these new gas plants were developed, prices in Asia were up to $25 a gigajoule. Back then, we were paying between $2 and $4.

Prepare now to be outraged. Global prices have more than halved to $10 and under. Domestic prices, meanwhile, have soared, to well above $10 because of the domestic shortage.

By putting the domestic market under pressure, they deliberately pushed local prices higher.

The upshot is that we now are paying more than Japanese manufacturers for our own gas. In fact, power company AGL is actively considering buying Australian gas in Japan and shipping it back home. And why not? It’s cheaper there.

That means energy-rich Australia is subsidising Asian manufacturers while penalising our own, a situation likely to force many to the wall.

Just to rub salt into the wound, the ramp-up in exports has not delivered the resources rent tax bonanza once promised by US giant Chevron. In fact, thanks to a shifty cash shuffle, ExxonMobil, Chevron and Shell until two years ago were booking around $3 billion a year in profit, tax free.

That’s seen our Petroleum Resources Rent Tax proceeds, which in the past delivered around $2 billion a year, plummet. In fact, by the time we overtake Qatar for global gas domination, it’s anticipated our resources tax will collect just $800 million.

Qatar, on the other hand, is expected to receive $26.6 billion in royalties that same year for roughly the same volume of exports.

So what’s being done about it?

Treasurer Scott Morrison last year declared he would urgently look into the matter. He’s called a review to get to the bottom of why soaring exports have coincided with a halving in the resources rent tax collections.

The review panel could do worse than read a report sent out last week by global investment bank Credit Suisse.

Hardly a bastion of left-wing ideologues, the report — entitled The Wolf Who Cried Boy — raises the prospect of Australia establishing a national oil company as one possible solution to the concocted crisis. And it goes straight for the jugular.

“If the gas producers and sellers are the wolves, they themselves are seemingly calling foul just as the danger is truly upon us,” it begins.

“We wonder whether a national oil company, a la Kumul Petroleum in PNG, could work? Instead of the petroleum resources rent tax on future projects, could we see state participation instead?”

Could we indeed? There undoubtedly will be howls of protest from the business lobby and their associated hangers-on. But consider this. Is this not the ultimate form of capitalism?

We are the landlords. The energy companies are tenants. If we had a controlling stake in the business, it would be much easier to ensure the kind of chicanery that has taken place in the past few years was never repeated. There would never be shortages.

And just perhaps, we’d end up with a dividend cheque, maybe even along the same lines as Qatar’s.

Just a thought.

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ExxonMobil’s natural gas project foments unrest in Papua New Guinea

Armed clansmen in the town of Komo in Papua New Guinea’s Hela Province. Photo courtesy of Michael Main

Michael Main | UPI  |  March 9, 2017

The Papua New Guinea liquefied natural gas project is the largest resource extraction project in the Asia-Pacific region. Constructed at a stated cost of $19 billion, it’s operated by ExxonMobil in joint venture with Oil Search and four other partners.

The project extracts natural gas from the Papua New Guinea highlands where it is processed before being sent via some 435 miles of pipeline to a plant near the nation’s capital, Port Moresby. The gas is then liquefied and transferred into ships for sale offshore.

Construction for the project began in 2010, and the first gas shipment was made in May 2014.

In February 2009, the economic consulting firm Acil Tasman (now Acil Allen) produced a report for ExxonMobil about the project’s impact. The purpose of the study, which was posted on ExxonMobil’s website but has now been removed, was to provide an analysis of the likely impacts of the project on Papua New Guinea’s economy.

ExxonMobil did not respond to questions about the removal of the report or the impact of the project on local communities.

The report said the project has the potential to transform the country’s economy by boosting GDP and money from exports. These would increase government revenue and provide royalty payments to landowners. It claims the project could potentially improve the quality of life of locals by providing services and enhancing productivity. Workers and suppliers would reap rewards, as would landowners who would also benefit from social and economic infrastructure.

But six years on, none of this has come to pass.

A shaky agreement

In the years since construction began, Papua New Guinea’s ranking on the United Nations Development Program’s Human Development Index has fallen by two places to 158, having been overtaken by Zimbabwe and Cameroon. Far from enhancing development indicators, the largest development project in PNG’s history has coincided with an unprecedented downgrade in the country’s development status.

In this period, there has been a stream of articles published that highlight the alarming state of Papua New Guinea’s economy and criticize the lack of positive economic and development impacts from the LNG project.

But very little is known about the actual impact of the project on local landowners. This is largely due to the remote location of the gas field in the mountainous Hela Province. The dire security situation in that part of Papua New Guinea also makes any investigation a highly dangerous undertaking.

I first visited Hela Province in 2009 shortly before the project was to begin construction. I encountered a population that was bristling with anticipation and enthusiasm for a development that promised to transform their lives.

In 2016, I returned and spent seven months with the landowners of the LNG project as part of my doctoral research. What I encountered was abject poverty situated alongside one of the largest natural gas extraction operations in the world. Combined with this was immense frustration, anger, corruption, mounting violence and widespread proliferation of weapons.

Like other such projects in Papua New Guinea, the LNG project was able to begin operations after agreement was reached with landowners on the benefits that were to be delivered via the extraction and sale of the resource that exists beneath their land. After much negotiation, the PNG LNG Project Umbrella Benefits Sharing Agreement was signed in May 2009.

On its website, ExxonMobil describes the agreement as ensuring a “fair distribution of the benefits,” but neither ExxonMobil, Oil Search nor any of the other joint venture partners are signatories to the UBSA. Rather, the agreement is between the Papua New Guinea state, various levels of government and the landowners themselves.

The agreement outlines a variety of income streams to be generated by the project, as well as specific development promises, such as road sealing and township development. Its upshot is that landowners can expect the LNG project to deliver tangible improvements to their lives and to the lives of their children.

But the reality – after four years of operation and windfall profits for the project’s joint venture partners – is that the project has delivered almost nothing of benefit to landowners. In fact, it has, in important ways, made life worse for the majority of people living in the project area.

Downward spiral

During my fieldwork with project area landowners, I saw a life of immense frustration, disappointment and palpable anger at the absence of benefits. The township of Komo, which is at the center of operations, contained a newly built hospital that stood empty with no beds, no staff and no fuel for its generator.

It, and its newly constructed staff houses for nonexistent staff, are just two of several white elephants built at inflated prices by companies owned by Papua New Guinea’s politicians. Promised road sealing and township development, including power supply and schools, have all failed to materialize.

The most terrifying aspect of life in Hela province has been the proliferation of weapons. The Huli-speaking population comprises a complex society of hundreds of individual clans with a history of disputes over land and possessions that can be traced back over many generations. This pre-existing context of intense inter-clan rivalry has been made worse by the frustrations of a population hammered by the broken promises of the nation’s largest resource development project.

During the project’s construction phase, Komo was a hive of activity. It was home to thousands of international workers as well as PNG nationals attracted to high-paying jobs and the promise of an LNG-driven future.

Large amounts of cash were paid to people who had no prior experience of money, and the lack of infrastructure development meant there was little to spend it on other than consumable goods and guns.

A black market arms trade has existed between the PNG highlands and the Indonesian military across the border in West Papua for many years. During the course of my fieldwork, I witnessed constant outbreaks of fighting by heavily armed clans, young men gunned down by military assault rifles, and many dozens of houses shot through with holes and razed to the ground.

Much of this fighting is a direct result of payments made to landowners displaced by the project. Compensation money paid to affected clans invariably ends up in the hands of individuals who fail to distribute the funds properly or support their own families, and the money is always paid to men.

In 2009, ExxonMobil agreed to pay 700 PNG Kina (approximately U.S. $216) per hectare per year for land occupied by the LNG project, indexed to inflation. The giant Komo airfield that was built to fly in materials for the project’s construction occupies an area of approximately 1,500 hectares. Disputes over ownership of that land have resulted in sporadic warfare over the past several years and dozens of deaths.

Military intervention

In August 2016, several leaders of landowning clans at ExxonMobil’s gas conditioning plant at the village of Hides, which is located on a ridge in a remote part of Hela Province, organized to blockade the facility and shut off the gas taps at several wells. Although security guards initially opposed the blockade, the landowners came armed. They forced their way into the plant site before locking its gates and demanding that the government meet their ultimatum to honor the UBSA agreement.

Members of Papua New Guinea’s mobile police squad told me they had no intention of acting against the local population, who vastly outnumber and outgun any police and military presence the government is capable of providing.

When I interviewed the landowner leaders during the blockade, it became clear that what they were demanding amounted to a better future for their families.

In November 2016, a convoy carrying the Hela Provincial governor, deputy governor and some local level government councilors was blocked on the road by an armed clan. Although the dispute was clan-related, I was informed that the convoy was targeted as a result of frustration over the lack of LNG project benefits and perceived corruption.

The resulting shootout left two people dead and one policeman wounded. A few weeks later, the PNG government announced that it would be sending troops with “logistical support” from ExxonMobil and Oil Search into Hela province, to flush out illegal arms and restore peace to that volatile part of the country.

The military intervention in Hela province has thus far been unsuccessful. James Komengi, a Huli who runs a peace NGO based in Hela province, told me that a gun amnesty that’s been in place for the past two months has failed to recover anything other than a few homemade shotguns and some non-serviceable factory-made rifles.

Residents of Komo village are reporting that ExxonMobil staff are being transported under heavily armed guard from their arrival at the Komo airfield to the gas conditioning facility at Hides. Recently, a man was gunned down at the Komo market in full view of the police and military contingent that is tasked with ridding the local population of its weapons.

According to the blog Papua New Guinea Mine Watch, these forces stood by and watched the killers as they calmly left the scene. They said that they were human beings who are fearful of losing their lives in the face of the enormous task ahead of them.

The governor of Hela Province has now declared the gun amnesty to be unsuccessful, with few weapons being surrendered.

The next stage is for the police and army to attempt to forcibly remove thousands of military weapons from hundreds of clans throughout the province. All this is a far cry from the excitement and optimism that characterized the mood of the landowners when the LNG project began construction in 2010.

Papua New Guinea now faces a situation where it’s compelled to send its army to an area where a major resource extraction project has failed to deliver on its promises to landowners. It may be time for all parties involved – both state and corporate – to consider development as a more effective path to peace.

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Opposition questions PM on benefits from LNG shipments

Delays in royalty payments are frustrating landowners

Delays in royalty payments are frustrating landowners

Post Courier | March 05, 2017

PRIME Minister Peter O’Neill has come under fire again from the Opposition on the benefits from LNG’s more than 200 shipments.

Mr O’Neill said bigger benefits were looming for the country in the next LNG projects at Port Moresby’s inaugural petroleum and energy summit.

Opposition Leader Don Polye said the Department of Treasury projected that annual proceeds from the first LNG would be up to K4 billion.

“Our alternative government’s question is who will benefit the most? We know these benefits looming in the petroleum and energy sector.

“This is not the first time we will see them coming in from such an international project.

“Our resource owners have missed out on benefits which are rightfully theirs in the first LNG project,” he said.

Mr Polye said the government had betrayed the people.

“Talking about projects after projects will not solve the real problems. There is nothing from the LNG project reflected in national budgets.

“Budget books show nothing. With such disarray in the management of the resources, pushing for another LNG project is unheard of,” he warned.

Sovereign wealth fund, he said, was established outside of the international best practice Santiago principle.

Mr Polye added that the Extractive Industry Transparency Initiative was not fully established within the standard frameworks as well.

“We cannot justify discussing another second or third LNG project. We are afraid their proceeds will also go down the same trend.

“I must boldly tell the nation that Prime Minister Peter O’Neill has mismanaged the country’s proceeds from the first LNG project.

The country is in the red. I would like to advice the forum to address these issues,” Mr Polye said.

He warns Total, ExxonMobil and other players that whilst bidding to increase their profitability to serve the interest of shareholders, they have a moral and legal obligation to PNG as well.

“We would like to see responsibility on the part of the developers to create a sustainable economy for PNG.

“When we are in government, we will not only bid for maximum benefits for our resource owners, we will fix SWF and EITI, minimise law and order, restore rule of law and alleviate corruption to make PNG become an attractive investment destination,” Mr Polye said.

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Papua New Guinea Asks Energy Explorers: Can We Keep Some of Our Gas?

lng-australia

Dan Murtaugh & Perry Williams | Bloomberg | March 6, 2017

  • Papua New Guinea gas is exported to nations like China, Japan
  • Access to gas may help boost industries, generate electricity

Less than three years after it began sending one of its most precious resources overseas, Papua New Guinea’s future may be determined by how much of it stays at home.

The tiny Pacific island nation wants some of the world’s top explorers to allow a portion of its natural gas to stay in the country, said Nixon Duban, the minister for the government’s petroleum and energy department. The fuel pumped from remote mountain ranges and forest-covered hills could spur industries, generate cheaper power for an electricity-starved population and even help catch tuna. But not at the cost of driving away drillers.

“The challenge our government faces is finding the right balance,” Duban said in an interview in Port Moresby, the capital of Papua New Guinea. “We’re trying not to dictate against the energy industry.”

Duban’s caution is understandable. The developing country of less than 8 million people is one of the poorest in Asia, with soaring crime rates, high unemployment, and almost half the population living in squatter settlements. It’s counting on energy resources to boost finances, and needs foreign investment. Its exports have led to some signs of prosperity, with Port Moresby turning home to a luxury hotel and a major mall as well as hosting international sporting events.

$19 Billion Project

Still, more sustained development will mean using some resources for itself. When the government signed deals almost nine years ago that led Exxon Mobil Corp. to build a liquefied natural gas terminal, it allowed the energy giant and its partners to export all of the gas it found. The project’s $19 billion price tag was more than the country’s annual gross domestic product. The LNG now lights the homes in metropolises including Tokyo, Beijing and Taipei.

The concession was made because the country was unproven as a gas exporter at the time, Prime Minister Peter O’Neill said in an interview in Port Moresby last week. In the past, “we allowed all the gas to be exported,” he said. “Now we want to secure some to go to the petrochemical industry.”

The government is in talks with commodity trading firms such as Japan’s Itochu Corp. and Sojitz Corp. to build petrochemical factories near the capital that will convert gas into methanol, Duban said. He recently negotiated with drillers on one lease to keep 15 percent of the gas for the domestic market, and will look at each lease on a case-by-case basis to make sure the projects are still attractive to the industry.

Itochu is considering the methanol project but nothing has been decided, a Tokyo-based spokesman said. Sojitz is currently considering whether to build a methanol facility on the island and is performing a feasibility study for the facility, according to its spokesman.

Power Outages

The government is also aiming to electrify 70 percent of the country by 2030, and while it wants 100 percent of it to come from renewable sources, natural gas could provide a bridge or alternative to reach its goal. Just 13 percent of the population has access to electricity, and even then it’s not uncommon for power outages to strike multiple times a day, forcing businesses to invest in expensive back-up diesel generators.

There’s already one industry on the island that could benefit from a stable supply of electricity — tuna canning. One-tenth of the world’s tuna is caught off the shores of the country, with estimates putting the value of Papua New Guinea’s yearly catch at $1.3 billion. If the canneries have access to cheap, affordable power, the businesses could thrive, said Mark Baker, Australia & New Zealand Banking Group Ltd.’s managing director for Papua New Guinea.

He cautioned that the island must be wary of the phenomenon known as the ‘resource curse,’ where mineral and fuel-rich nations tend to have worse economic growth, political stability and development than countries with fewer natural resources.

“They need to use their resources to invest in broad-based growth,” Baker said in an interview in Port Moresby. “The government is trying to avoid the resource curse, and that can only happen when you invest in infrastructure like power, ports and roads.”

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Call for greater returns for PNG resource owners

Papua New Guinea opposition leader and Kandep MP Don Polye. Photo: Papua New Guinea opposition

Papua New Guinea opposition leader and Kandep MP Don Polye. Photo: Papua New Guinea opposition

Radio New Zealand | 3 March 2017

Papua New Guinea’s Opposition Leader Don Polye is calling for the petroleum and energy sector to ensure resource owners’ get greater benefits.

Speaking at the inaugural petroleum and energy summit being underway in Port Moresby, Mr Polye said the discussions have been one-sided – focussing on corporate profitability, while the interests of landowners have been ignored.

Mr Polye says earnings from the sector must also benefit the people and secure their futures.

He says PNG’s human development index has worsened despite the existence of world-class energy projects in the country.

The biggest project is the ExxonMobil-led Liquefied Natural Gas project which has commercialised gas fields in the country’s Highlands region.

LNG Project facility, Central Province, Papua New Guinea. Photo: RNZI / Johnny Blades

LNG Project facility, Central Province, Papua New Guinea. Photo: RNZI / Johnny Blades

The US$19 billion LNG Project began exports to Asian markets in 2014, but landowner communities are still complaining that they have seen little in the way of benefits from the project.

While their grievances have tended to be with government rather than developer, landowners mounted various protests last year, demanding outstanding project payments, and greater share of equity in the project.

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PNG premier calls for Australian Federal Police intervention to quell gun violence ‘crisis’ threatening LNG operations

PHOTO: Tribal fighting is a persistent problem in Hela province. (ABC News: Eric Tlozek)

PHOTO: Tribal fighting is a persistent problem in Hela province. (ABC News: Eric Tlozek)

ABC Radio | 2 March 2017

The premier of Papua New Guinea’s Hela province is calling for an Australian Federal Police intervention to quell an outbreak of lawlessness he says has reached crisis point.

Key points:

  • Premier says province is awash with arms, including high-powered weapons
  • Describes situation as crisis with resource-rich province on the brink of failure
  • Says external help is essential, claiming some police are smuggling weapons for warlords

Premier Francis Potape said an escalating wave of armed violence exacerbated by some police officers was threatening critical liquefied natural gas and oil resources.

“Police in Hela province are good but there are also a few individuals who are rogue police and they assisted war lords to bring in weapons from the neighbouring highland provinces. And also, also they have supplied bullets to warring tribes,” he said.

“This accumulation of weapons came to a stage where it is, that part of the province, of the country, is coming to a failed, crisis situation and we need someone from the outside.”

Police were refusing to act on arrest warrants against scores of suspects and high-powered weapons were amongst those smuggled into the country, he added.

Tribal fighting in the province is a persistent problem in Hela province but flared up dramatically last year.

In response, a joint PNG police and military intervention was launched to gather as many illegal weapons from local people as possible, reportedly with mixed results.

Exxon-Mobil’s PNG LNG project in Hela — the country’s largest resources venture — has been repeatedly disrupted by incursions and blockades from disgruntled landowners, who complain they have not duped on promised royalties.

Mr Potape did not say if he had run his rather extraordinary request past PNG Prime Minister Peter O’Neill.

Australian Federal Police representatives could not be reached for comment.

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