IT SEEMS like the crunch time is coming for InterOil Ltd and its LNG project in Gulf Province. By Wantok*
The company has announced its corporate advisers will come up with a shortlist of potential LNG partners and its board will "evaluate" the best candidate(s) early in March.
In many circles there is not much optimism about a favourable outcome because of the many years InterOil, and its friends in government, have been hunting unsuccessfully for such a partner.
Among the reasons for this has been the complex structure proposed for the project with separate corporate entities suggested for upstream, midstream and downstream development. In some government circles this has been viewed as a potential avenue for transfer pricing.
Regardless of these concerns, the latest Antelope-3 drilling results provide a highly favourable backdrop for early development.
The 2300-foot column height of the Antelope intersection is the best of the three wells put down at that location and gives some assurance there is more than enough natural gas for the proposed onshore facility to produce 3.8 million tonnes annual LNG capacity.
The facility remains a far cry from the eight million tonne a year facility originally proposed in 2009 that was to have been located near InterOil's Napa Napa refinery within the area of the Port Moresby port.
That has now been abandoned in favour of a smaller, and much cheaper, plant in the Gulf in the vicinity of its Elk and Antelope gas fields. That deal has been concluded with the Australian-listed Energy World Corporation.
According to InterOil, the company is in a high state of preparedness for the LNG project. Progress has been made on engineering and design of the LNG plant and preliminary front end engineering and design has progressed on a gas gathering system.
The agreement with Mitsui on funding of a condensate stripping facility is even more advanced. FEED has been completed and bids received in response to a tender. A winning bidder could be named anytime.
FEED has also been completed on the pipeline from Elk-Antelope to the proposed plant site and some bids have been invited. FEED is well advanced on the marine facility but has yet to be conducted on the LNG plant site.
All of this provides a rather rosy picture for any intending partner for the LNG project, including the InterOil assessment that it has 9.4 trillion cubic feet of recoverable gas, as determined by Canadian-based GLJ Petroleum Consultants. This is only a shade below the 10.5Tcf that ExxonMobil and its partners are entitled to use for their 6.9 million tonnes a year PNG LNG Project.
The complicated aspect for any newcomer would be the InterOil proposal that it sell half of its entire gas resource to the PNG government, giving it an additional 27.5% stake along with the 22.5% stake it is entitled to.
Not much has been said on how this might be accomplished and the price the government may have to pay for the additional gas. Presumably, if it was targeted for domestic use, parity with LNG export pricing cannot be made a prerequisite but how this will all work is still something of a mystery to most observers.
If a solid and reputable partner comes into the picture the modular project concept for the Gulf project could take shape rather quickly but, as the saying goes, there is many a slip between cup and the lip!
ExxonMobil's PNG LNG Project is already proving to be a game changer in PNG, transformational being an adjective frequently used to describe it.
The prospect that a second LNG could come along rather quickly after ExxonMobil's 2014 launch is possibly one of the reasons why the current PNG government has revved up government expenditures like a drunken sailor with public sector borrowings of Kina 2.5 billion proposed during the current year.
The countdown to the likely InterOil announcement next month will certainly be awaited with much interest both within PNG and abroad.
*Disclaimer: Like all stories from Port Moresby-based Wantok, this is an opinion piece.
EWC Price at posting:
32.5¢ Sentiment: None Disclosure: Held
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