Voices from Central Province - A Review of Oxfam's Research on PNG LNG

Listening to the Impacts of the PNG LNG Project: Central Province, Papua New Guinea by Iris Wielders for Oxfam, 2011.

Reviewed by LNG Watch Papua New Guinea

In 2011 Oxfam launched their LNG Impact Listening Project. In the words of Oxfam, the project's aim is to “understand people’s experiences and views of the impacts of the PNG LNG Project, and how they are responding to these impacts” (p.2). The listening project has focused on four villages affected by the LNG operation in Central Province; Lea lea, Papa, Boera and Porebada. A welcomed emphasis is given to the voice of women.

                                Source: Oxfam (2011)

Oxfam's researchers encountered mixed feelings on the project. While some villagers were happy to have new employment and training opportunities, there were concerns over pay and conditions:

The youth that are working complain about the hard work and the salary, they work seven days per week in construction and general labour. Their contracts are with the contractor companies but they are being paid by Laba [Holdings]. When they first started work they got paid 800/900 [kina], now they get only 400 [kina]. The rates between the trainees that later work and those that are hired directly are different. People think this is because the money for the trainees goes through Laba and they get less. Why are they contracted to other companies but Laba pays them? The employees have already been on strike two or three times because of these issues.

               

                            - Young man from Lea Lea (p.15)

Concerns were  raised over perceived racism in the workplace: "The outsiders coming into the PNG LNG Project are allowed in the mess. We [as employees] are not allowed in the mess. Our lunches are given in the open places" (Man from Porebada, p.15).

Oxfam researchers also found that while people welcomed the benefits money generating opportunities brought to the village, there were worries over the effect of the project on community resources, community relations, and traditional life.

Men and women from Papa told Oxfam: “There are no teachers at schools as most of them have been employed by the project, which has resulted in the school being closed in the village” (p.16). A women from Porebada added: “Law and order is not carried out properly/correctly due to the experienced ones being engaged by the PNG LNG Project” (p.16).

People also felt the project was creating divisions in and between communities, as families struggled to obtain a fair share of the project benefits. A young man from Porebada remarks: “Because of the PNG LNG Project some of the clans or even families have broken up. They give first preference to their immediate families to be trained to work. Some are being left out — have never had any chance yet” (p.16).

This echoes the history of Bougainville, where communities experienced similar problem. Ex-Bougainville President, James Tanis, recalls: “The people started seeing each other not as brothers and sisters and clan mates with common ownership of wealth, but more as business competitors, with only the fittest to survive. This contributed to inequality, to social gaps and to hatred”.

And like on Bougainville, many villagers raised concerns over the increased abuse of alcohol, and the influx of outsiders. A woman from Porebada claims, “outsiders [are] coming in renting shops in the village. Liquor sold 24 hours. Making business in the village” (p.17).

Oxfam found there are also concerns in Central Province over how the gas pipeline and plant will affect the local environment - an anxiety that is shared by those in Madang confronting the Ramu nickel mine. A man from Boera remarked: “The pipeline may cause the sand to rise especially in areas where construction is done. The awareness on environmental issues on pipeline is not true” (p.17).

Indeed, in line with our own research in Hela (LNG Watch PNG forthcoming), Oxfam found that people feel as if ExxonMobil has promised a lot, but in fact has delivered very little. A woman from Papa claims: “ExxonMobil raised awareness with people in the village on the building of schools, health (aid post), water supply. Empty promises” (p.17). While a Man from Boera suggests: “A lot has been said and agreed about how the project will affect these infrastructures but we are yet to see things materialising — school, health centre, church and road” (p.17)

Oxfam’s report is sensitive, fair and well researched. While it is not entirely gloomy, it does raise serious concerns over the project. Sadly the media in PNG and Australia has predominantly focused on the project’s positive impacts, while the voice of everyday villagers has been silenced. Oxfam’s report is an important document that gives the concerns of villagers, and women in particular, a little more volume.

The report is available online at: http://www.oxfam.org.au/resources/pages/view.php?ref=655&k=

What happens when a country uses its natural wealth for poverty reduction

ExxonMobil Not Finished With Venezuelan Arbitration; Could Win $7 Billion

International Business Times News, January 3, 2012 Tuesday

ExxonMobil has not thrown in the towel in a controversial arbitration in Venezuela over seizure of its assets, in which the International Chamber of Commerce ruled against it in favour of the government of President Hugo Chavez.

Irving, Tex.-based Exxon Mobil is scheduled to receive $907.6 million from Venezuela's state-owned oil producer PDVSA in compensation for the 2007 seizure of the U.S. company's oil wells and refineries. A certain portion was already credited in the form of debt relief and the remaining $746.9 million could be paid out in the form of cash, further debt relief, or $305 million held in U.S. courts, said Patrick McGinn, a spokesperson for ExxonMobil.

Chavez's government seized the company's assets when it nationalized the country's oil industry. Caracas offered ExxonMobil the book value of its seized assets in the Orinoco River Basin while ExxonMobil demanded more. Government officials said the company's demands were excessive. An impasse ensued, and for years the two have been locked in arbitration.

"This ICC arbitration award represents recovery on a limited, contractual liability of PDVSA that was provided for in the Cerro Negro project agreement. Contract sanctity and respect for the rule of law are core principles used to manage our business over the long term," McGinn said in a statement.

ExxonMobil originally asked for $12 billion, but has since lowered its compensation request to $7 billion.

The arbitration is being hailed as a victory for the Chavez government. PDVSA, on its Web site, said the arbitration is consistent with what Venezuela was initially ready to offer.

"After four years of arbitration, the actual amount determined by the ICC Court is, in fact, less than the exorbitant sum originally claimed," read the statement.

Fedel Gheit, an oil analyst with Oppenheimer, told International Business Times the arbitration is a victory for the Chavez government because it is on the low end of the scale.

That being said, the arbitration sum makes it so that ExxonMobil essentially breaks even on its investment in the country.

"To my recollection, that is the exact book value of the asset," Gheit told IBTimes.

But book value and market value are two very different things, and the company's assets could very well be calculated in billions of dollars, he said. With oil prices higher now than they were previously when ExxonMobil first entered the country, Gheit said he suspects the market vaule of the company's assets could have quadrupled beyond its book value.

The settlement, in a way, goes against the whole principle of investing - one does not invest without the intention of collecting on returns.

"It's unfortunate in a way because it makes it difficult for companies to conduct business," Gheit said.

ExxonMobil could receive more in compensation come February when a larger arbitration hearing between the two is argued in the International Center for Settlement of Investment Disputes for the fair market value of the company's assets in the country, said McGinn.

"We recognize Venezuela's legal right to expropriate assets subject to compensation at fair market value," McGinn said.

Venezuela's state oil company PDVSA, said if ExxonMobil continues its arbitration, it will take all necessary measures to protect itself.

ExxonMobil's shares rose $1.56 to $86.32 in midday trading. They rose nearly 16 percent in 2011.

Sinopec Shenzhen Escort Signs LNG Agreement with Exxon Mobil

Economic News (Information Agency Oreanda), December 27, 2011 Tuesday

China Petroleum & Chemical Corp. (Sinopec) announced Wednesday that its subsidiary China International United Petroleum & Chemical Co., Ltd. (Unipec) has signed a liquified natural gas (LNG) framework agreement with Exxon Mobil Corp.

According to the framework, Sinopec agreed to import 2 million tons of LNG from Exxon Mobils project in Papua New Guinea each year.

The two companies are working together towards a final agreement, according to the announcement.

Wang Zhigang, senior vice president of Sinopec said that all the resources from the project in Papua New Guinea will be sent to the receiving terminal station of LNG that was established by Sinopec in Qingdao, Shangdong Province. He hopes that both sides can final this agreement as soon as possible.

The Papua New Guinea project was an integrative project that includes the oil production and post-processing facility, the oil pipeline on the land and in the seas, and all LNG factory plants.

Sinopec is an integrated chemical engineering and energy company that is publicly listed in Hong Kong, New York, London and Shanghai. By the turnover of 2008, Sinopec was one of the largest oil refiners in Asia.

The Carve-Up of PNG: Western Province is Next

It would appear official, PNG is for sale and investors are excited. Writing in the Wall Street Journal David Winning claims: “Papua New Guinea has been transformed into a playground for the energy industry’s big beasts seeking gas reserves that can be developed and shipped to Asia’s booming economies”. Now the ‘big beasts’ have set their sites on Western Province, which contains a major gas reserve which Talisman Energy hopes to tap.

To date Talisman state they have acquired interests in 12 licences covering an area of more than 15 million acres. The company’s Vice President Dave Nolan claims: “The government and  communities within our licence  areas are keen on development.  We are working with all stakeholders to ensure social and environmental impacts are assessed and addressed”.

Of course, communities in Western Province are keen on development (especially the glossy version sold by eager mining companies), after all this is one of the ‘poorest’ and most remote regions in PNG. To this end, investments from foreign capital may be welcomed by some landowners. However, given the Exxonmobil LNG project experience, where even by the national government’s own admission* the memorandum of agreement with landowners was rushed, we hypothesise that villagers will not be empowered to make well-informed choices.

Indeed, this is part of the charm perhaps. With a government who acts as an investment partner, and not a regulator, landowners are left in the position where they have to try and negotiate with both state and capital. Given the complex legal and economic calculations this involves, a well resourced country would find this difficult, let alone village people who have poor access to education, information-technology or for that matter roads. As a result, they may sign, but this does not equal consent, something which Exxonmobil are discovering, much to the horror of their senior management, who are attempting to keep landowner resistance quite.

Now that the sharks are circling Western Province, this is clearly an issue to watch in 2012!

*It was stated in January 2011 by the then Deputy Prime Minister, Sam Abal: "Mipela government i tok sori long rasim PNG LNG agreement mipela i sainim (we, in government, are sorry for the rushed PNG LNG agreement that was signed)".

Appendix - General Information on Western Province

Source: National Research Institute (2010)

Talisman Seeks PNG Partner

  Talisman Seeks PNG Partner

David Winning, The Wall Street Journal, 28 December 2011

Papua New Guinea may look a one-trick pony in global gas markets, with only the ExxonMobil-led PNG LNG project under construction. But Talisman Energy’s move to bring in a partner on its acreage in the country is a reminder that there are other games in town.

Talisman has appointed Sydney-based advisory firm RFC Corporate Finance to find an investor for four licenses in the forelands of western Papua New Guinea, which contain a mix of gas discoveries and exploration targets. The company reckons it can aggregate between 2 trillion and 4 trillion cubic feet of gas in Papua New Guinea–enough to underpin a single unit producing liquefied natural gas, or LNG, for export.

“Our intent was always to seek a strategic partner in what is a very large license interest position, once sufficient resources have been aggregated,” said Dave Mann, a spokesman for Calgary-based Talisman. “RFC represents a formal process to execute on this.”

Once a frontier region for exploration, Papua New Guinea has been transformed into a playground for the energy industry’s big beasts seeking gas reserves that can be developed and shipped to Asia’s booming economies. Talisman drove that process in the forelands area in 2009 and 2010, completing deals such as the US$177 million acquisition of Rift Oil and taking stakes in gas discoveries owned by ASX-listed Horizon Oil.

According to a BP study, Papua New Guinea had 15.6 trillion cubic feet of proven reserves of natural gas at the end of 2010. That figure likely underestimates the true resource as Papua New Guinea has been lightly explored up to now.

Talisman is offering to sell a 50% interest in the PPL 235 and PPL 261 licenses, which it wholly owns, and 10% stakes in the PRL 4 and PRL 21 blocks. RFC is calling for binding bids to be submitted by the end of January.

PPL 235 contains the Puk Puk, Douglas and Langia discoveries that contain a combined 2.4 trillion cubic feet of gas in place. Three exploration wells have been drilled so far in PPL 235, which it acquired through the Rift Oil takeover, and all have discovered natural gas.

“The exploration activity in these blocks has matured a series of drillable prospects with exciting prospective resource potential, and we are looking for a partner with a similar vision to Talisman for aggregation of gas resources in the PNG Foreland,” Mann says.

PRL 4 and PRL 21 also contain discovered resources, but the near-term focus is on developing reserves of condensate there with a view to bringing the gas to market later.

For now, Talisman is keeping its options open on a route to market for the gas. It could pipe gas to the US$15.7 billion PNG LNG project to support an expansion there. In its first phase, PNG LNG will have a annual production capacity of 6.6 million tons of LNG, with shipments to customers in Japan, Taiwan and China due to begin in 2014.

Piping the gas to PNG LNG is attractive because it would likely be cheaper than building and operating an onshore plant, or locating a floating LNG vessel in the Gulf of Papua.

But to strengthen its hand in any negotiations with Exxon and joint venture partners like Santos and Oil Search, Talisman likely needs an alternative route to market. If it succeeds in attracting a strategic partner with deep pockets, such as from China or Japan, then it opens doors for potential financing of a standalone LNG development.

Yep this is sustainable! Global Energy Demand 1990-2040.

Occupiers slow down operations at PNG LNG site

Radio New Zealand, 23 December, 2011

The operator of the multi-billion dollar liquified natural gas project in Papua New Guinea says it is hoping for a quick resolution after a group of landowners stormed one of its key project sites in the Hela province.

The chairperson of the Gobe landowners group, Jerome Kairi, estimates about 12-hundred now occupy the Gobe Field Engineers camp site.

Mr Kairi says they have given the government and operator of the LNG project ESSO Highlands Ltd, 48 hours to meet commitments made to landowners, such as infrastructure improvements and development grants.

But the ESSO Highlands Ltd spokesperson Rebecca Arnold says the grievances do not relate to the natural gas project.

“The primary issues really relate to government commitments around oil project memorandum’s of agreement. The PNG LNG project is obviously very hopeful of a quick resolution to the issue.”

Rebecca Arnold says operations have slowed down at the site in Gobe as a result of the occupation.