News: PNG LNG partners look to multi-year spot cargo deals

MELBOURNE, Aug 23 (Reuters) - ExxonMobil Corp's Papua New Guinea liquefied natural gas (LNG) project is eyeing multi-year contracts for sales of spot cargoes to soak up excess production, co-owner Oil Search (OSH) said on Tuesday.

The unusual move for the LNG industry, dominated by long-term contracts, reflects strong output at PNG LNG, which is producing 12 percent above nameplate capacity at 7.7 million tonnes per annum (mtpa) two years after start-up.

The project sold eight spot cargoes in the first half of this year, beyond the 6.6 mtpa locked in long-term contracts to customers in Japan, China and Taiwan.

The project is in the process of having the proven reserves in its foundation gas fields recertified, which Oil Search is confident will result in a bigger reserve base that could underpin multi-year contracts for future spot cargoes.

"With a positive outlook on the recertification, we'd certainly be looking at longer term strips of sales - contracts that would be potentially a number of years," Julian Fowles, Oil Search's executive general manager for PNG, told analysts on a conference call.

Such contracts would cover a substantial portion of spot volumes, and the "strips" could extend to as long as five to seven years, he said.

Marketing for PNG LNG is handled by ExxonMobil for all the partners.

Of the eight spot cargoes sold in the first half of 2016, six went to Japanese customers, who like the PNG gas for its high heating value, or high energy content. Other buyers outside the core customers have also started picking up spot cargoes.

"So we've got other customers getting used to PNG LNG product - and that's also very good for future marketing of longer term spot cargoes," Fowles said.