InterOil Eying Ways to Jumpstart Gulf LNG

In talks with Papua New Guinea government to supply gas to domestic market

By Christine Forster

Sydney—InterOil is negotiating a domestic gas supply arrangement as part of its discussions with the Papua New Guinea government over its stalled Gulf LNG project, CEO Phil Mulacek told Platts this week.

“We are working with the PNG government on the entrance of new LNG partners, and addressing items like a domestic market obligation [DMO],” Mulacek said. “We are the first to allow the state to use gas for domestic items like power, with a DMO. This was not available from [the] ExxonMobil/OilSearch LNG project,” Mulacek said.

The Gulf LNG project received a fresh lease of life after the July general elections in PNG, with reappointed Minister for Petroleum and Energy William Duma indicating that he stands ready to work with the company to move the project forward.

His position marked a considerable softening of his stance in May, when he set a 180-day trigger for the termination of InterOil’s 2009 project agreement with the PNG government. The termination notice was based on fears that InterOil was going to deviate from an earlier agreed approach to liquefying and exporting natural gas produced offshore PNG.

The 2009 agreement called for the delivery of a 7.6 million-10.2 million mt/year LNG project based on InterOil’s Elk and Antelope gas reserves, using internationally recognized technology and operators with experience at similar-sized assets. Instead, the companyhad proposed a phased development with itself as the upstream operator.

Following the July election, the government suspended the notice of intent to terminate InterOil’s 2009 agreement.

InterOil said August 22 it was negotiating to bring a heavyweight partner into the project.

Mulacek said this week that talks with potential new partners were ongoing, but were subject to confidentiality agreements.

“There are more than two majors, national oil companies and utilities all working for a final LNG transaction,” he said. “The ability to have clarity with the new PNG government has shifted the LNG project in a manner to [be] focused to have FID and close.”

A consortium comprising Korea Gas Corporation, Japan Petroleum Exploration and Mitsui is also in discussions to take part in the project and is “very keen,” Mulacek said. Details of those talks were also confidential, he added.

InterOil’s proposed project would be PNG’s second LNG facility. US giant ExxonMobil is currently constructing a $15.7 billion LNG project, which is on track to start up in 2014, producing 6.6 million mt/year from two trains.

Shell is an obvious potential partner for InterOil, as it has a strategic alliance with PNG’s state-owned Petromin, signed in August last year, and is actively pursuing LNG opportunities through a Port Moresby office opened in February this year. Chevron is said to be interested, although the company has declined to comment.

Mulacek said the PNG government was targeting approval for the project by cabinet, known as the National Executive Council, by the end of this year.— Christine Forster

Thanks Stavros for the article.  PNG domestic market is non existent for nattie.  LP gas yes.  Looks like IOC has the gas and retail presence in PNG to build out to meet the domestic needs.  This could be why tO'Neill appointed a post election 'gas negotiating team'.