Papua New Guinea Prime Minister Peter O'Neill has revealed that 10 per cent of the gas in the next phase of LNG expansion in the nation will be reserved for domestic use, while the tax structure from the $US12 billion project will be engineered to ensure a flow of revenues for the government even when commodity prices sink to their lowest point in the cycle.
The news on some of the key terms around the LNG project puts some meat behind the memorandum of understanding between the government and the Total-led Papua LNG venture announced during the APEC summit in Port Moresby last month.
But as signalled by that announcement, the timetable for the project has slipped, with the partners now only set to start initial engineering and design work on the expansion in the June quarter of 2019 after the delayed "gas agreement" setting out fiscal terms and other conditions is finalised in March.
Jean-Marc Moiray, the new managing director of the PNG operations of Total SA, which is leading the Papua LNG project, told a conference in Sydney the French energy giant hopes now to give a final go-ahead for the project "before the end of 2020", and for production start-up by the end of 2024.
The schedule represents a delay from that previously outlined by project partner Oil Search, which was targeting a final investment decision in 2019 and start-up in 2023.
Oil Search managing director Peter Botten had voiced hopes that the "gas agreement" with the government would be announced during the high-profile APEC summit. But the complexity of the negotiations and stretched government resources are understood to have contributed to the delay.
Mr Botten told the PNG Mining & Petroleum Investment Conference in Sydney on Monday that he still expects Papua LNG to capture the market opportunity seen opening for global LNG demand in 2023-24 but underlined the importance of the timing staying on track.
"Everyone can see [the market window in 2023-24] and the competition is starting to ramp up," confirmed Andrew Barry, managing director of ExxonMobil PNG, which is a major partner in the expansion.
"PNG has got to get at the front of the line," Mr Barry said, to capture both the market opportunity and to avoid cost escalation arising from increased demand on contractors.
As agreed in February, the expansion will involve three 2.7 million tonnes-a-year LNG trains that together will roughly double existing capacity in PNG from the Exxon-led PNG LNG venture. Two trains will process gas from the Total-led Papua LNG venture that owns the Elk and Antelope fields, with the third to be supplied by fields in the Highlands region within the PNG LNG project plus the P'nyang field further to the west.
Alongside the obligation to supply the domestic market, the LNG expansion project will have to allow third-party access to its pipelines to avoid stranded gas fields held by other companies, said PNG minister for petroleum Fabian Pok. National content obligations will also be imposed to ensure business opportunities for local companies.
Dr Pok said the PNG government had learned lessons from mistakes made with the initial PNG LNG project and would ensure conditions around the expansion would guarantee revenues for the government even during a price slump and would support local development, including using gas for power generation and to develop local industries
Still, industry sources say that the actual volume of gas kept for use within PNG will be much less than 10 per cent given the small local market and the time it will take to grow. The deal with the government is understood to allow gas unable to find a commercial market within PNG to still be exported as LNG.
Several projects using gas for electricity generation are in the works, including a 58-megawatt plant near Port Moresby by NiuPower, owned by Oil Search and Kumul Petroleum, due to start up in March.
ExxonMobil PNG also signed a deal at the conference with PNG Power to study the viability of a 5 MW power plant in Hela Province in the Highlands.
Only 12-13 per cent of PNG's population has access to electricity despite the successful LNG export industry.
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