Tag Archives: Papua LNG

“Government Will Not Repeat Mistake With Papua LNG”

Post Courier | May 30, 2018

PRIME Minister Peter O’Neill has told Parliament that the government will not repeat the same mistakes when dealing with the new Papua LNG project or any other resource project.

He said the developer of Papua LNG would have to complete social mapping and landowner identification before any project is developed.

Mr O’Neill also said the government would review the laws to make it compulsory for consultation with provincial governments and landowners.

“We may have to review the legislation around the consultation process, but in terms of the resources sectors in mining, petroleum and gas industry, I think there is quite a very good consultation process between the stakeholders, especially the landowners and the provincial governments,” he said.

“I would also want to announce that in terms of the second LNG project for Elk Antelope, I want to inform Parliament that we have also included the Governor for Gulf in the State negotiation team.”

He said this follows the precedence set by the Somare government in the first LNG project where the governors for Southern Highlands and Hela were included in the negotiation teams so they are fully engaged in every stage of the negotiation that is taking place.

“I certainly do not want to make the mistakes of the first LNG, where landowners were not properly identified now we are having a difficult process of clan vetting as all sorts of clans are popping up and it can be a cumbersome and difficult exercise,” he said.

“That’s what we are trying to avoid and we want to make sure that developers take on the responsibility as stipulated in the Oil and Gas Act and in the Mining Act.

“They must identify and do the social mapping properly so that the right benefits go to the rightful landowners and stakeholders in the projects,” he said.

Mr O’Neill was responding to questions from Gulf Governor Chris Haiveta relating to provincial government representation in the extractive industry and the level of consultation and the time which these consultations are allowed for by the provincial governments and the resource owners.

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PNG Wants a Bigger Slice of Exxon’s Gas Profits

Hides Gas Conditioning Plant in Papua New Guinea. Photographer: Richard Dellman via Exxon Mobil Corp.

Dan Murtaugh and Aaron Clark | Bloomberg |May 23, 2018

  •  Papua New Guinea seeking bigger cut of gas-export revenues
  •  IMF says country got ‘quite limited’ benefit from initial deal

The tiny, impoverished nation of Papua New Guinea came out on the short end of a $19 billion development with Exxon Mobil Corp. to build one of Asia-Pacific’s biggest energy projects. But as the company pushes to expand the venture, the government is vowing that round two may require a much bigger payday for the locals.

By most accounts, the liquefied natural gas business that Exxon and partners built from scratch is an engineering and commercial success. The PNG LNG venture, which started operating in 2014, is delivering more fuel than expected to Asian economic giants Japan and China. It’s so promising that the U.S. company — with annual revenue 10 times larger than Papua New Guinea’s economy — declared the Pacific island a key building block for its future growth and plans to double output.

Trouble is, the original deal reached a decade ago has failed to deliver the windfall to Papua New Guinea that the government and an Exxon-commissioned study predicted. An International Monetary Fund analysis showed “quite limited benefits” for the country, which granted Exxon generous rights to recover certain costs before paying taxes or fees. While the initial investment was welcome, the government has formed a new team to negotiate better terms before it approves the proposed expansion.

“There is a general view that Papua New Guinea gave away too much for the first LNG project,” said Peter Koim, a member of the negotiating team who is also director of the country’s Gas Project Coordinating Office. For the next round “the country will not give away concessions as was the case in the PNG LNG project,” he said.

PNG LNG produces gas from wells in the forested mountains known as the Highlands, and sends it 700 kilometers (435 miles) southeast via pipeline to a processing plant on the shores of Caution Bay, near the capital, Port Moresby. The gas is super-chilled to liquid form and loaded onto special tankers for shipment overseas. Originally designed to process a maximum of 6.9 million metric tons a year, the plant produced more than 8.2 million in 2017.

Exxon last year spent as much as $3.9 billion buying access to additional reserves and drilling rights in the country and is working with partners including Australia’s Oil Search Ltd. and France’s Total SA on a separate $13 billion venture known as Papua LNG. The development would add 8 million tons of additional annual processing capacity at the existing PNG LNG plant, but tap gas deposits in a different part of the country and require a new pipeline.

The country will negotiate separately with Exxon and Total on the different projects that will contribute to an overall expected rise in the nation’s gas exports, Koim said.

Demand for the gas has been strong. Long-term supply contracts were signed with buyers including chemical makers and utilities that are as much as 4,500 kilometers across the sea from Papua New Guinea, which is located on an island just north of Australia’s Queensland state. With global consumption booming, analysts see a shortage of LNG coming in the early part of next decade, right when an expansion project would come online if work were to start soon.

Prospects are so promising that Exxon’s Chief Executive Officer Darren Woods said as recently as March that he is counting on Papua New Guinea and several other countries to help reverse declining output at the company, one of the world’s largest energy suppliers. Irving, Texas-based Exxon plans about $200 billion in capital expenditures through 2025, including in Mozambique, Brazil and Guyana, as well as America’s Permian Basin.

A more demanding Papua New Guinea could pose a hurdle to Exxon’s plans. Already, the company has been forced to defend its contract in Guyana, a small South American country that signed a deal two years ago to develop the world’s biggest new deep-water find in a decade. The IMF described that agreement as “favorable” for Exxon, compared with global norms. The company has said there’s no need to renegotiate because the contract already included several concessions to the government.

The Papua New Guinea government isn’t seeking to revise the old contract. But the tenor of talks over the expansion will be influenced by the public perception that the massive project simply didn’t deliver the benefits that were promised.

Unfulfilled Expectations

An April 2009 version of an economic impact study by ACIL Tasman (now ACIL Allen Consulting) for Exxon said the project “has the potential to transform the economy of Papua New Guinea, boosting GDP and export earnings, providing a major increase in government revenue, royalty payments to landowners, creating employment opportunities during construction and operation, and providing a catalyst to further gas-based industry development.”

And before production began, the government estimated PNG LNG would boost its revenue by 2 billion kina ($613 million) a year through 2021, the World Bank said in a December report.

Instead, the project’s partners paid only about 495 million kina in taxes, royalties, dividends and other payments in 2016, data from the Extractive Industries Transparency Initiative show. A “complex web of exemptions and allowances” effectively mean that little revenue from the project goes to the government and landowners, the World Bank said.

“It’s an extraordinarily low level,” said Paul Barker, executive director at the Papua New Guinea Institute of National Affairs. “If you are not getting much in the way of revenue, there is something a bit screwed up.”

A research and advocacy group, Jubilee Australia Debt & Development Research Centre, had an even harsher take, noting in a detailed report last month that by “almost every measure of economic welfare,” Papua New Guinea “would have been better off without the PNG LNG project.”

Of the total paid to the government in 2016 by PNG LNG partners, Exxon’s share was about 216 million kina, more than half of which was income tax, according to EITI data. By comparison, the company’s revenue from the project was more than ten times that, at about 2.56 billion kina, according to Bloomberg estimates using production figures and annual averages for crude prices and foreign exchange rates.

Papua New Guinea has a stake in the venture through its state oil company, Kumul Petroleum Holdings Ltd. It’s portion of the revenue was 1.28 billion kina in 2016, according to Bloomberg calculations. It contributed about 100 million kina to the treasury and gave the government an advance of 200 million kina, according to an EITI report.

Exxon says it is honoring all contractually required payments and that the project delivers more than just government revenue. PNG LNG has contributed about 14 billion kina to local businesses and the government, and employs 2,600 workers and contractors, about 82 percent of whom are locals, an Exxon spokeswoman said by email.

PNG Liquefied Natural Gas Plant near Port Moresby, Papua New Guinea.Photographer: Richard Dellman via ExxonMobil Corp.

To be sure, it’s not unusual for a country without its own natural gas industry or infrastructure to make concessions to secure the huge investments needed to develop untapped reserves. But often, citizens of poor or underdeveloped countries see little or no benefit from commodity extraction by foreign companies because their governments were inept, corrupt or both — a symptom of what economists call the resource curse.

Royalties and development levies came under particular scrutiny by the World Bank and IMF. That’s because the payments are calculated after deductions for operating costs, debt repayments and capital expenses. As a result, when LNG prices fall in line with oil, as they did when crude prices crashed shortly after the project started, the biggest impact is on the amount going to the government. In some cases the project can claim losses that offset future royalty payments, according to the World Bank.

The government’s “current level of revenue from the PNG LNG project is not sufficient due to the heavy concessions granted, loan repayments and subdued oil prices in the recent past,” Koim said.

Highlands Unrest

The distribution of royalties from the project have already caused unrest in the Highlands. Residents threatened violence against gas plants and pipelines in late 2016, after they didn’t receive payments. The government said the distributions were delayed because of a review of clan records and property rights to make sure the money went to the right people. The first 15 million kina in royalties was paid to villagers in late 2017, according to Exxon and Port Morseby-based The National newspaper.

Papua New Guinea has been through similar challenges before. Three decades ago, disputes over royalties from one of the world’s largest copper mines helped fuel an independence movement on Bougainville Island. The autonomous region is planning an independence referendum next year.

During the original negotiations, Papua New Guinea recognized that it needed to sweeten the deal with Exxon by allowing for things like tax breaks on infrastructure spending, according to Koim, of the Gas Project Coordinating Office, and Fabian Pok, the nation’s energy minster.

“Some incentives were given” during the original negotiations, Pok said. “These incentives may not be available” in talks over the expansion, he said.

Balancing Risk

The success of the initial project lowers the risk associated with future investments, which may give Papua New Guinea more leverage in negotiations, said Andrew Harwood, a research director with energy consultancy Wood Mackenzie Ltd. in Singapore.

“The government is entitled to seek a larger share of any expansion, but needs to balance potential higher government revenues against the risk of deterring future investment,” Harwood said.

One way to increase government revenue would be for state oil company Kumul to take a bigger stake in the expansion. Koim suggested a 30 percent share, compared with 16.8 in the initial project. (The state also has a 2 percent interest through its Mineral Resources Development Co.) Other government officials want drillers to sell a portion of their gas domestically to fuel power plants and spur industrial development.

“Everything is on the table for negotiations,” said Pok, the energy minister. At the same time, he said, the government realizes that Papua New Guinea isn’t the only country courting LNG investments, with competition coming from places like Qatar, Mozambique and the U.S.

“We need to remember that Exxon and Total are companies operating worldwide,” Pok said in a telephone interview. “They’ve come into PNG and built confidence in our oil and gas industry, and their investment is welcome. We will come to an agreement, but we need all the parties together and talking and focused on getting the best outcome.”

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Total steamrolling Papua LNG project against landowner wishes

Landowners want mapping delayed

The National aka The Loggers Times | January 8, 2018

BAIMURU landowners in Gulf are calling on Papua LNG operator Total SE to defer the social-mapping exercises to allow the landowners to be better represented and informed.
The call is for Total to reschedule the process for Petroleum Retention Licence (PRL) 15 to allow for an awareness programme and more consultations.
Baimuru local level government deputy president Omaro Karara said the communities involved did not know enough of what was going on.
He said the SMLI should be done properly so that the communities can be accurately identified. He was speaking in Port Moresby at the weekend on behalf of the social mapping and landowners identification working committee (SMLIWC) and the PRL 15 landowners.
He said the committee objected to the dates set by the developer because they were told late.
“We would like to defer the activity to March 2018 as government accounts will be opened and we will be in a better position to raise awareness and to mobilise our ward members to organise their people,” Karara said.
“I am informed that as of Friday January 5, 2018, the four villages of Uraru, Wabo, Poroi and Subu had been surveyed but the survey team was prevented from continuing at the fifth village of Eva’ara because the people there wanted more time to learn about what was going on.”
Karara said that if the process was rushed through, there would be conflict.
“We are appealing for more consultation for the safety of the SMLI team and the successful completion of the survey,” he said.
Better communication was needed, Karara said.

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