Exxon has Room to Expand

Bloomberg.com 15/12/10

Exxon Mobil Corp.’s liquefied natural gas project in Papua New Guinea could add a third production line because of the possibility of finding more natural gas, Sanford C. Bernstein & Co. said.

The Hides gas area may contain 50 percent additional deposits compared with currently booked reserves, Bernstein said in a report today. Exxon and Oil Search Ltd. plan to produce 6.6 million metric tons a year of the frozen fuel in 2014 from two production lines at a $15 billion LNG venture.

“The main trunk-line for PNG LNG has the capacity to accommodate a third and possibly fourth LNG train at a low cost, making the marginal return on LNG expansion extremely attractive,” Hong Kong-based analysts, Neil Beveridge and Angus Chan, said in the e-mailed note.

Oil Search and InterOil Corp. are among those planning to build LNG projects in Papua New Guinea to supply growing Asian economies. The country remains under-explored and under- appraised, and the possibility of multi-trillion cubic feet discoveries, which could underpin future LNG projects, remains high, Bernstein said.

Oil Search wants to find reserves to support two more processing units at the Exxon-operated LNG venture, it said in April.

The analysts gave Oil Search an “outperform” rating and increased the share-price target to A$8.50 from A$8. Oil Search advanced 1.2 percent to A$7.01 in Sydney trading today, compared with a 0.1 percent increase for the benchmark S&P/ASX 200 Index.

Industry comes clean on its interest in PNG: Tax concessions, cheap labor, big reserves and pro-business government

The following exert offers an industry perspective on Papua New Guinea's gas reserves. The central reasons identified for investment in PNG's LNG projects include:

• A pro-business government who is prepared to expediate projects, when other states show caution.
• Cheap labor.
• Tax concessions.
• Big reserves.

Papua New Guinea Looks to Asia to Market its LNG


Oil and Gas News, 13 December 2010.

PAPUA NEW GUINEA (PNG) is in the midst of a massive LNG development programme which by 2014 could transform its economy, with three separate LNG projects are currently at different stages of development in the country, located at Asia's eastern extremity and widely considered one of the world's most significant remaining untapped gas provinces.

But in a region where LNG industries are already well established in Malaysia and Indonesia and where Australia is embarking on a the $40 billion Gorgon development in Western Australia and the $100 billion coal seam gas projects in Queensland, are PNG's ambitions to be the new major strategic LNG supplier to gas-hungry north Asia justified?

…

Karl Yalo, who advises the PNG government on LNG development matters and is also managing director of PNGEPCM Ltd, a local engineering procurement and construction (EPC) contractor which recently entered a joint venture agreement with Korea's Daehan Oil Pipeline Corporation (Dopco) to develop pipelines, storage tanks and loading terminals in PNG, said the country's high hopes for LNG are justified.

"PNG is the fastest-growing emerging LNG industry in Asia Pacific and Australasia, located in the heart of the world's largest LNG market," Yalo said during a recent visit to the Gulf to raise awareness among potential investors of PNG's opportunities.

…

PNG also enjoys strategic advantages over its larger neighbour to the south, said Yalo. 

"PNG is fast-tracking its LNG projects, which will come onstream before those in Australia. We are geographically closer to key Asian markets than Australia, we have a more attractive fiscal regime, lower-cost labour, and our LNG sites are not vulnerable to natural disasters such as cyclones. Our gas also has fewer impurities than Australian gas, meaning less processing and lower production costs," he explained. 

…

The Kopi LNG project, under construction, is being led by ExxonMobil, with the PNG government an equity partner.  

The $18 billion project - the largest private sector investment ever undertaken in PNG - is interesting in many ways, not least the way it was funded in entirety at the height of the global financial crisis.  

"The $18 billion was raised in less than six months, a phenomenal achievement. The US Export-Import (Exim) Bank committed $3 billion, the largest commitment in the bank's history, demonstrating the robust nature of the project," said Yalo.  

In addition, while traditionally PNG has sought investment for major infrastructure projects from Australia, New Zealand, Japan, China, Korea, Singapore and Malaysia, in 2009 the PNG government secured a $2 billion arrangement with Abu Dhabi's state-owned International Petroleum Investment Company (IPIC), the first ever commercial arrangement between PNG and the Arab world. 

"We expect it (the IPIC deal) to be a catalyst for closer engagement between PNG and the Arab world and is something we intend to build on as Gulf States seek to diversify their investments in resource-rich emerging markets," said Yalo. 

…

PNG's second major project, which will include condensate strip plant and onshore LNG processing facilities, will be built and operated by Liquid Niugini Gas Limited, and InterOil, a $3 billion capital company listed on the Toronto and New York Stock Exchanges and with petroleum licenses covering about 3.9 million acres, an oil refinery, and retail and commercial distribution facilities in PNG. Pursuant to the PNG Oil and Gas Act, the Government will take 22.5 per cent equity when the project goes into commercial production.  

A agreement for the construction of the LNG plant was signed between the PNG Government and Liquid Niugini Gas in December 2009 under which fiscal terms were secured for a 20-year period, including a 30 per cent corporate tax rate and certain other exemptions applicable to large-scale projects, giving the project added stability.   

Ducking the Leadership Tribunal

Ducking leadership tribunals, placing his family in senior governmental positions, yes this is the man to get PNG the best LNG deal!

Papua New Guinea's Leader 'Fights Tribunal'

AFP

Papua New Guinea leader Michael Somare is fighting to stop a tribunal being set up to hear allegations of official misconduct against him, according to his spokeswoman.

Somare, who has led the impoverished island nation for 16 of its 35 years of independence, would be forced to hand over to his deputy for the duration of any probe into his alleged failure to report his finances in the 1990s.

His lawyers have sought to stop the tribunal being set up, saying that another case also alleging financial reporting improprieties by Somare more than a decade ago must be dealt with first.

"The PM's lawyers have asked for an injunction on setting up a tribunal until a substantive matter has been heard by the Supreme Court," Somare's spokeswoman and daughter Betha Somare told AFP via telephone from Port Moresby on Saturday.

Betha Somare said that if the chief justice did decide to go ahead and establish a leadership tribunal, the prime minister would hand the reins of government to his deputy while the case was heard.

"Once the tribunal is set, the PM has to step aside. He says that he will step aside," she said.

The tribunal would consider whether Somare failed to submit records of his pay, as required of all public office holders, during the 1990s, she said.

Betha Somare said the calls for an investigation into the issue were politically motivated and that the prime minister's enemies would "use it to the limit".

"They have tried to pin so many other things on him and they haven't been able to and this is what they've found," she said.

Somare has been under pressure to resign all year, with the veteran leader thwarting a parliamentary no-confidence vote in July triggered by the defection of some MPs only by abruptly adjourning proceedings until November.

At the time, parliament was outraged at the adjournment, and in wild scenes Somare reportedly crossed the floor to tell an opposition lawmaker "you're dead meat".

His spokeswoman said the 74-year-old leader was confident he would not lose his position as prime minister of Papua New Guinea, which is on the cusp of a resources boom thanks to the development of gas deposits.

In response to opposition claims of corruption, Betha Somare said the country was not perfect.

"But that doesn't mean that the party that's in government has to step down because in all governments anywhere in the world these sorts of things happen," she said.

Political Violence, Corruption and the Southern Highlands

An interesting talk by anthropologist Nicole Haley that gives us an insight into the complex political economy which the LNG project is inserting itself into.

http://asiapacific.anu.edu.au/__data/assets/mp3_file/0010/1036/DiminishingConflicts_16_PNG_Southern_Highlands.mp3



More information on the author can be found at:

http://asiapacific.anu.edu.au/people/personal/halen_ant.php

Esso's Selective Project History

LNG works progressing well

By Mohammad Bashir (Post Courier, 8/12/2010)

EXXONMOBIL, the developer of the PNG LNG project told the Sydney Mining and Petroleum conference yesterday that construction activities were currently focused on improving and upgrading infrastructure, including road and bridge works, telecommunications, and constructing camps to house the construction workforce and completing site preparation work ahead of facilities construction.

Esso Highlands Ltd (EHL) Managing Director Peter Graham in his presentations said detailed engineering, execution planning and procurement activities for the facilities, pipelines and drilling were also progressing.

“Linepipe for the onshore gas line from the Gulf of Papua to the Southern Highlands is arriving at the expanded shore base at Kopi and clearing of the pipeline way has commenced. Trenching and pipe laying will commence in the first quarter of 2011,” Mr Graham said.

He said earthworks at Komo Airfield and the site of the future Hides Gas Conditioning Plant have commenced while at the LNG Plant site, an 800-person pioneer camp is complete and site preparation for the LNG Plant was already well underway.

“By early 2011, all of the major EPC contractors will have mobilised to the field.” 

He said ExxonMobil has over a century of success in helping countries around the world develop their resources. EHL, the project operator is a subsidiary of Exxon Mobil Corporation, the world’s largest publicly traded international oil and gas company.

From the Archives: A Letter from the Catholic Bishops' Conference April 2010

LNG – Blessing or Curse? A Question for the People of Papua New Guinea to Answer. Pastoral Letter of the Catholic Bishops’ Conference Papua New Guinea and Solomon Islands April 18, 2010

“God saw everything that he had made, and indeed, it was very good” (Genesis 1:31).

 Brothers and Sisters in Christ,

About sixty years ago, once hidden fortunes of gold, silver, copper, nickel and oil were discovered in PNG.  Today, Bougainville, Pogera, Ok Tedi, Lihir, Kutubu and Ramu are familiar names because of their mineral riches and the projects they generated.  All of these ventures promised to bring development and prosperity to our country, especially in the provinces where they are located.  Landowners expected great benefits too.  But have these promises been kept?  Or are these resources and the amazing opportunities they present being squandered? 

No doubt, a great deal of positive economic growth has taken place in our nation in recent years.  At the same time it is probably true that only a few people have profited significantly, some becoming enormously rich.  Most ordinary people haven’t benefited much at all from the mineral wealth of our nation.  Wealth hasn’t trickled down throughout society and so urban settlements are growing and rural areas are becoming poorer.  Thus, for many people the most obvious outcome of so-called development has been more negative than positive, for example, widespread corruption, poverty and violence are on the rise.  The years of crisis on Bougainville, which resulted in many deaths and deep division in PNG society, still weighs heavily on the minds of people.  The environmental damage to the Fly River system by Ok Tedi Mining is another painful fact.  We also lament the ravaged forests of Madang, the Gulf and Western Provinces and the social turmoil at Pogera.  Kutubu oil continues to generate revenue but ordinary Southern Highlanders have seen very little gain from it over the years.  And today, the people of the Rai Coast fight to save the waters of Basumuk Bay from pollution and potential damage to the fisheries there.

Consider these questions  -  Why are health care and education services so poor in a country as rich as ours?  Why is infrastructure development, such as roads and bridges, rural electrification and communications lagging behind so badly?  What about governance, law and order, public service performance and political leadership?  Why haven’t these things gotten better over the years?  It is not an exaggeration to say the big development projects haven’t helped as much as they should have.  The country hasn’t fared well on the Human Development Index (HDI) during the past six years.  Our own government admits this in a study done by the National Strategic Plan Taskforce called PAPUA NEW GUINEA VISION 2050.  Successive governments have failed our people. 

The Catholic Bishops urge elected officials, who govern and make our laws, along with public servants who implement these decisions, to reflect on their role as leaders and servants of the people.  Wise leadership and dedicated service should be their goal.  Unfortunately, for some the attraction of power and money overwhelms their faith in God, love of neighbor, honesty at work and service to others.   Perhaps we all should pay more attention to the words of Jesus, “Will you gain anything if you win the whole world but lose your life?  Of course not” (Mt. 16:26)! Papua New Guinea is now poised to begin the largest economic venture of them all - the LNG (liquid natural gas) project.  Will it be a blessing or a curse for PNG?

  According to analysts, the economic impact of the project will be positive.  The resource will produce great wealth, more than doubling the Gross Domestic Product (GDP) of the nation.  What is less certain is whether or not these riches will be managed wisely by national, provincial and local level governments as well as landowners, thus benefiting all of society.  Recently the Prime Minister said, “The challenge of my government is to convert the benefits of this Project to meaningful development that would improve the lives and living conditions of every Papua New Guinean.”  The VISION 2050 document referred to earlier states, “We simply do not have any more excuses.  We owe it to ourselves and the future generations to shift our attitudes and mind-set toward improving our living standards.  We are faced with an array of challenges, but we are also presented with great opportunities” (V. 2050 pg. 29 Summary).  Historically, PNG has a poor record of achievement in doing this so the challenge is indeed great. 

 Not much is known by the general public about what will be the environmental impact of the project.  PNG LNG infrastructure includes several very large processing facilities and more than 700km of pipeline from the Highlands to the coast and then subsea to a site near Port Moresby.   Environmental issues would seem to be potentially great in a project of this magnitude.  Most likely these will be portrayed as minimal by the developer ExxonMobil and co-venturers, Oil Search Ltd. a Papua New Guinean company, Santos, Nippon Oil and the PNG Government.  The PNG Government’s holdings are in Independent Public Business Corporation (IPBC), Mineral Resources Development Company (MRDC), which is the trustee and manager for landowner interests, and Eda Oil.  So the people of PNG are a significant stakeholder in the project.  Will we be as concerned about the environmental impact of the project as we should?

 Environmental groups will be more critical of the project.  Our government and landowners need to be vigilant too. However, both have a substantial economic interest in the project and a poor record regarding environmental protection in the past.  So, environmental advocates, the media, interested NGOs and the churches must be on the alert, ready to speak out on behalf of the people and God’s creation.  Developers would be wise to be more informative and transparent with regard to environmental issues and answer critics with facts and good science, which can be analyzed and tested by impartial experts.

 More problematic is the potential for a serious negative social impact from the project, both in the immediate area but also in other parts of the country.   Here the Catholic Bishops must express great concern.  We have already seen outbreaks of violence over land ownership issues and drunken chaos after large payments of cash were distributed to people unaccustomed to such unexpected wealth.  And going forward, some people will benefit greatly while others are left out.  This will likely cause already existing rivalries to flare up leading to increased violence and criminal activity.  Even though PNG LNG will generate enormous wealth, we see the possibility of a rise in poverty because money will not be managed wisely by government, by families and by individuals.  Let’s remember too that some people will be displaced as project infrastructure is developed.  Once their cash payments are gone, perhaps wasted, they will realize too late that their land and livelihood is lost forever. 

Traditional values and Christian faith are already under attack in PNG because of growing materialism and a hunger for money.  There is a rising attitude which says get what you can while you can. This is especially true where public service departments are already corrupt and dysfunctional, health care and education services poor and law and order marginal.   Many Southern Highlanders and Hela people believe the police and courts will serve the project developers but not be concerned about what goes on elsewhere.  They suspect health care and education will deteriorate even further as the project attracts professionals from these fields.  Furthermore, family life is likely to suffer in many places as men leave their families to find work with the LNG project, particularly if many spend their earnings on pleasure trips to the cities, on hire vehicles, alcohol and drugs, prostitutes and payment to buy a second wife.  HIV will spread as a result of bad and risky behavior.  We can expect these and other problems to intensify as part of the negative social impact from PNG LNG.

Papua New Guinea is a Christian country with hundreds of thousands of Catholics and other Christians working hard to live lives pleasing to God.  We Christians believe we are called share the Good News of Jesus Christ with others.  More than ever, now is the time to be strong and truly live our faith.  Christian churches must challenge their members to hold onto Christian principles and values, live the Commandments, put trust in God through prayer, stand together and support one another in the Christian communities.  Bishops and priests, religious and lay ministers, pastors and catechists, in fact all committed Christians, must step forward at this time.  We already know how important faith, prayer and solidarity are in times of crisis and danger, such as during great natural and manmade disasters.  We must realize they are also very important in times of great prosperity and rapid social change. 

+Francesco Panfilo SDB

President of the Catholic Bishops’ Conference of PNG SI

Iron Laws of Competition Ensures Race to the Bottom

PNG Warned to Act Fast on LNG

By Nicole Stevens AAP (6/12/2010)

Papua New Guinea (PNG) must accelerate the development of its natural gas projects and lock in customers or risk competition from overseas producers and unconventional coal seam and shale gas projects, an oil and gas expert says.

Independent researcher and the chairman of FACTS Global Energy, Dr Fereidun Fesharaki, made the comments at the 11th PNG Mining and Petroleum Investment Conference in Sydney on Monday.

The three-day conference has so far focused on the US$15 billion PNG LNG (liquid natural gas) project under development by ExxonMobil in PNG's Southern Highlands.

The joint venture project with Santos,

Oil Search Ltd

and the PNG government is on track to deliver its first shipment of LNG in 2014.

Dr Fesharaki says PNG must act quickly to secure Asian markets for that and other LNG developments, or face competition from the cheaper Qatar LNG currently being sold into the US market.

"You have to be aware that this threat is there, so you have to act to shore up your customers," Dr Fesharaki said.

"It is not possible to compete with Qatari LNG on economics. The only way to compete is to tie up the market."

Dr Fesharaki said LNG production in Qatar cost about a quarter of that in PNG.

The Australian government has provided concessional loans of US$500 million to support development of the PNG LNG project, which is viewed as critical to the social and economic development of PNG.

PNG Prime Minister Sir Michael Somare said in his opening address to the conference that Australian companies had already won contracts worth twice as much as the finance provided by the Australian government.

"My government is anticipating that LNG revenues will propel the economy to new heights and significantly improve our social indicators, which for too long have remained stagnant," Mr Somare said.

PNG is expecting growth of 7.1 per cent in 2010 and eight per cent in 2011, the Prime Minister said.

But exporting gas from the remote Southern Highlands and Western Province of PNG is not without its challenges, according to ExxonMobil upstream project mananger for the PNG LNG project Decie Autin.

Ms Autin said a 700km pipeline, including 450km of sub-sea pipeline, would be required to transport the gas to an LNG facility near Port Moresby for shipment.

Ms Autin said the pipeline must also traverse low lying topography, deep gorges and steep terrain that was subject to landslides and significant environmental areas, making it a complex undertaking.

An export terminal would operate 24 hours a day at the LNG processing site near Port Moresby, loading an LNG tanker for export every two to three days, she said.

Prime Minister Somare said he hopes to witness the reopening of the Bougainville Copper Mine, closed 20 years ago amidst secessionist violence.

"PNG is also in the throes of becoming a major world supplier of copper," he said.

The Panguna mine at Bougainville is one of the world's largest copper and gold mines.

"Our darkest hour came with the Bougainville conflict," Mr Somare said.

"It was a setback from which Bougainville and the nation has not fully recovered. Work is well underway to restore the damage of those years."

Mr Somare said the government would continue to focus on providing a stable political environment and transparent mining regime to encourage futher development.