Significant year in the land of opportunity
By RUSSELL SEARANCKE Wellington
13 February 2015 00:00 GMT
PAPUA New Guinea is shaping up as an intriguing venue this year as drilling results, the latest arbitration ruling and corporate goals come together to offer clarity on the country’s next liquefied natural gas venture.
In the last month alone, ExxonMobil, InterOil and Horizon Oil have offered reminders as to their LNG ambitions, and 2015 is shaping up as a significant year.
ExxonMobil has signed a memorandum of understanding with the government to use the P’nyang field as feedstock for an expansion of the PNG LNG project.
InterOil chief executive Michael Hession re-emphasised his confidence that the proposed Elk-Antelope project can potentially be the lowest-cost LNG project in Asia-Pacific, while Horizon reiterated that Daru Island is the preferred location for a greenfield LNG plant fed by gas in Western Province.
ExxonMobil has a headstart over the rest through its PNG LNG infrastructure, but it does need to firm up a little more gas resource to underpin a new train.
P’nyang is identified as the feedstock source, but ExxonMobil will be drilling one or more appraisal wells at the field.
The US supermajor is also currently drilling into the deep exploration section of the Hides F1 well, which is believed to have significant gas potential beneath the usual producing reservoir at the Hides field.
Elk-Antelope is acknowledged as the number two project and Western Province is number three, but there are various intrigues at play for both.
First and foremost, they need to firm up their gas resources, and there is a lot of exploration and appraisal work in progress in PNG’s unforgiving terrain.
InterOil has two rigs at the Elk-Antelope field drilling the Antelope-4 appraisal on the southern extent of the field, and the Antelope-5 well on the western flank.
The field owners — InterOil, Total and Oil Search — also plan to drill the Antelope-6 well on the eastern flank in the first half this year. These wells will help define the size and structural extent of the field, and whether it can underpin one or two LNG trains.
Oil Search has just lost a legal case against InterOil regarding the validity of InterOil’s sale last year to Total of an interest in Elk-Antelope.
If Oil Search had been successful in the arbitration hearing, it could have been in a position to dictate the terms of the field development.
It had said previously that the arbitration outcome would have a major influence on the LNG development concept, particularly where the LNG trains would be located, their construction timing and size.
Well-placed sources say Oil Search is focused on putting the arbitration behind it and moving forward with the Elk-Antelope project.
Oil Search is also one of the PNG LNG owners and, though it has not expressed its preference explicitly, it is cheerleading for brownfield expansions, meaning building more trains at PNG LNG instead of new greenfield sites.
The PNG LNG site close to Port Moresby is understood to have enough space for eight LNG trains.
There is also plenty of intrigue in Western Province.
Talisman Energy is the major operator and gas resource holder, and has pledged to build an LNG project, but its destiny is uncertain given Repsol’s ongoing $13 billion takeover of Talisman.
On the basis that Talisman remains in PNG, the company wants to bring together all the gas resource owners in the Western Province for an LNG project.
Its basecase LNG site is at Daru on the south coast — this was reiterated recently by one of Talisman’s co-venturers, Horizon Oil.
Other resource owners in Western Province include Mitsubishi Corporation, Osaka Gas, Santos, Kina Petroleum and Transform Exploration (formerly Eaglewood Energy). Talisman reckons there is gas potential in Western Province of up to 20 trillion cubic feet, and aims to prove up between 3 Tcf and 5 Tcf by the end of this year.
“We have some drilling coming up that has the potential to easily get us there,” Talisman’s general manager for PNG and Australia, Grant Christie, said recently.
It remains to be seen whether the Western Province will host its own LNG facility or whether the gas will be transported to the PNG LNG location.
There is another crucial piece of activity due to take place this year — LNG marketing.
Assuming that the various drilling operations are successful and the operators are satisfied with their resources, each will begin marketing that gas to LNG buyers.
Market watchers said LNG sellers will have major challenges given the low oil price.
Wood MacKenzie said Asian LNG demand was much lower than expected in 2014.
Demand in emerging markets, such as China, failed to increase to the extent anticipated and demand in the established South Korean market fell considerably.
Wood Mackenzie added that LNG prices dropped between June and September last year as new supply from PNG LNG and reduced Asian demand left the Pacific basin long on supply.
Oil Search is unperturbed. Its managing director Peter Botten said: “Oil Search remains fully focused on the next phase of LNG development in PNG... as these LNG trains offer attractive economic returns, even if a weak oil and LNG pricing environment persists”.
