Size of our new Gulf LNG Project?

[Stavros]

Let's talk about the size of our new Gulf LNG Plant in context of the leading bidders.

Allow me to digress for a moment first.

The original Project Agreement signed by the NEC on 10 December 2009 called for production of 7.6 Million tons LNG per annum with provision for expansion up to 10.6 Million tons per annum. Location to be in Napa Napa adjacent to the InterOil Refinery

Then we tried to jump-start the project with Modular LNG units from Siemens/Chart (via EWC) and a Floating LNG Project from Samsung (via FLEX), both to be located in Gulf Province. This idea did not conform to the Project Agreement because the capacity was too small and the location was changed.

Fast forward to the current situation.

We are told that bids from major LNG players are being evaluated. Speculation is that JKM Consortium, ExxonMobil and Shell are the three top contenders with others still on the field. We're led to believe that all three of the above are acceptable (JKM would probably bring in an operating partner; I've always felt their choice will be PETRONAS).

Furthermore, we hear that the change to the Gulf location will be accepted.

HERE'S MY QUESTION: What size will PNG Government accept?

The Exxon-led PNG LNG Project is 6.6 Million tons LNG per annum (two trains). If Exxon is the winning bidder they will most definitely want to duplicate the PNG LNG plant design at Gulf. Is this reduced size acceptable to PNG Government? I would venture to say that YES they would allow the first phase of the project to be 6.6 rather than 7.6, which enables XOM to build the plant sooner than the other bidders because all the engineering is completed and equipment can be ordered immediately.

My CONCLUSION: If 6.6 Million tons LNG per annum is allowed by the PNG Government then XOM will be the Partner due to the ability to get financing quickly (cost is known) and start up 12-24 months earlier than the others.

Any other thoughts???

[strategyguy536]

That seems a good analysis to me... a possible attractive scenario. The PNG govt. would be so happy to have XOM and a plant of their liking, they would compromise on the initial size.

Another scenario might be XOM or another bidder using the modular approach that IOC and others have been pursuing, but put the modules on land. That can save time over a stick-built plant. And some of those modules may be partially assembled, or at least have most of their engineering and costing done.

Obviously we shareowners want the best deal now, and also the earliest practicable LNG operation with a great partner(s).

[admin]

Will PNG allow Exxon to have such a commanding position with their gas and liquids? It's possible, they're certainly a 'nameplate' that is 'world class', but they would establish a monopoly, sort off.

Another issue for Exxon would be, what would be cheaper, build extra trains at Port Morseby or a new plant in the Gulf

[Palm]

At the AGM I asked Collin about the idea of PNG not wanting Exxon to be the winner asked on the idea of them having too much "power" or a sort of monopoly. Collin blew that notion off very quickly with a half laugh and a "No, that's. It an issue." They do want Petromin to have diverse partners, but in a way they already have that. Petromin does not just work in the O&G industry. Also the O&G sector is still fairly immature. There will be ample time for Shell and others to partner with Petromin. Right now it is crucial for the financial future of PNG that the first two LNG projects are sizeable and come to fruition. If the first 2 end up bring Exxon driven, so be it.

On the issue of startup volume it seems from the government's standpoint the real issue is that volume from these first two projects in total is what's crucial. Exxon also has a bit of an issue as their project was approved for the 6.6 mtpa and 2 trains. Yet they are pressing ahead toward 2 more trains. So if Exxon were to come and say that they will be an upstream partner and work with JKM, might the government approve the CSPs to be built, the conditioned gas to be sold to EXXON, the condensates to be barged to the refinery with the understanding that a stick plant/Mitsui modular and port is to be built in Gulf? There is at least one spur in that Exxon pipeline already. The Gulf people might raise a stink about initial production not being in Gulf (except the CSPs), but the original PA said LNG would be produced at Napa Napa.

Lots of scenarios could work for PNG and Gulf given the right partners. We should know before long. Then of course we have the Tri/Bwata discoveries. Where will that gas go?

[Tree]

It appears a safe bet that ennerOle will need to meet TWO REQUIREMENTS for approval.
1) 7.6 mmtpa start-up
2) Recognized LNG Operator

If XOM were winning bidder and came it at 6.6 mmtpa, I'd expect PNG to say 'NO'.
I also agree with STP, that it'd appear more economical for XOM to add onto PNG LNG rather than to build a Province in the Gulf and build another PNG LNG. It appears that would be a stoopid move for XOM. If XOM is the winning bidder I'd imagine they would either only want a dry gas dealio to fill their pipeline and their PNG LNG expansion -or- they will outright buy IOC.
Me still thinks JKM + a contract Operator, not Petronas, will be our ultimate Gulf E/A partner. I can see EWC at 3mmtpa as planned and an approx. 8mmtpa Mitsui stick build to be our configuration. FLEX at best, replaced by Petromin FLNG.

[Palm]

XOM doesn't have to build another plant in Gulf. They can be the operator of a plant built by JKM. That way offtakes/maintence shutdowns can be managed/coordinated. All Exxon/JKM lineup could knock it out of park.

[Tree]

It would make a bit of sense for XOM to have LNG arbitrage ability within PNG itself. Gee, I'd imagine RDS and Chevy would bid that luxury up in the event they cannot compete with XOM deep pockets or JKM's ability to print $$.

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It would make a bit of sense for XOM to have LNG arbitrage ability within PNG itself. Gee, I'd imagine RDS and Chevy would bid that luxury up in the event they cannot compete with XOM deep pockets or JKM's ability to print $$.

[ArtM72]

XOM is training young PNG nationals at their US facilities to run the Port Moresby plant. Assuming that program is going well it would make a lot of sense to have XOM build a second plant much like the first for this and the several reasons noted above. After all is said and done, once built XOM can always sell it to someone. Alternatively, there should be opportunities for a couple more plants in IOC areas alone if the geological studies are to be believed. Those can always be Shell or JKM or whoever.

My bet stays with XOM, with the "big plan" being a dry gas manifold all along the Gulf coast, XOM establishing the first link with E/A.