EXXONMOBIL appears to be banking on Papua New Guinea as a cornerstone of its Asia-Pac

[Resourcearb]

EXXONMOBIL appears to be banking on Papua New Guinea as a cornerstone of its Asia-Pacific LNG export strategy.

With the PNG LNG project 90% complete and first exports anticipated by mid-2014, ExxonMobil's PNG horizons have expanded considerably as it mulls the best gas option for a third train.

A commitment is likely by the end of this year, or possibly the first quarter of 2014.

The ExxonMobil propensity to surprise the PNG public first came with its announcement it was in talks with InterOil for possible purchase of 4.6 trillion cubic feet of gas from the Elk and Antelope fields in Gulf Province as potential feed for the third train at the LNG plant near Port Moresby.

At least one key player was not too happy at the news.

Petroleum Minister William Duma, in a couple of interviews, one of them with Radio New Zealand, said he was not in favour of an ExxonMobil deal with InterOil because it would give the global multinational too much power in the PNG gas industry.

Duma was previously known to support the participation of Shell and the national government's Petromin as partners with InterOil but a government statement indicated Prime Minister Peter O'Neill personally favoured the involvement of ExxonMobil.

While there is little doubt at this stage that Elk and Antelope will feed the third LNG train operated by ExxonMobil, the door has been left open for InterOil to use the remaining gas to build a stand-alone LNG plant in Gulf.

From a national and strategic point of view Elk and Antelope make a lot of sense as add-ons to the PNG LNG project.

Wherever the gas source, the third train has always been viewed as an expansion that would be highly profitable given the use of existing infrastructure.

It is even more so in the case of InterOil-owned gas, given its close proximity to the LNG gas pipeline.

The PNG LNG project had always targeted a supply gap in world LNG markets and a speedy expansion would be exquisitely timed, given the uncertainties being generated by shale gas in the US and recent approvals for two LNG export projects from the US.

Given the slowing down in world economic growth and the burgeoning oil and gas production from the US, there is every possibility world export prices of these commodities are about to fall.

And even if oil prices manage to stay firm, as many analysts appear to believe, gas is already under pressure from US LNG pricing linked to its Henry Hub and the clear pressure starting with Japan to delink LNG from oil prices.

What ExxonMobil is doing is putting PNG in the box seat, not just for the third and possibly fourth trains. Its dynamic think tank in Houston could well be contemplating the medium-term potential for a fifth train, for which there is already enough room near Port Moresby – as well as the possibility of a second LNG project.

This scenario was brought home by ExxonMobil's decision this week to spend $US40 million to purchase a 50% stake in PPL269, which lies just below the P'nyang field, believed to host at least 3Tcf, an area that contains many untested targets and a gas discovery from a few decades ago.

PPL269 was purchased from Australia-listed New Guinea Energy subsidiary Kirkland, in contrast to a previous deal in which ExxonMobil and its key LNG partner Oil Search had jointly purchased another property held by NGE.

With one foot in the door in InterOil's Gulf Province gas fields, ExxonMobil will find itself a partner with Canadian Talisman in PPL269.

Talisman has for some years been talking up its goal of becoming PNG's third LNG producer by bringing together a number of stranded fields in Western province.

With its entry into PPL269 ExxonMobil has suddenly made P'nyang much more suited for a separate LNG venture linked to other Talisman-connected gas fields such as Elevala, Ketu and Stanley.

The fields have much better proximity than the current gas pipeline that goes from Hides and Kutubu to the PNG LNG project plant site near Port Moresby.

To some observers it may appear like far-fetched speculation, except that Esso Highlands managing director Peter Graham was today quoted in The Nationalnewspaper as saying that ExxonMobil would be looking at other LNG prospects in the coming decade.

That makes it sound like a second LNG project could be in the offing.

The National quoted him as saying more work needed to be done at P'nyang – some more seismic is being shot there – while Juha and Angore were part of the foundation project at Hides that would be developed as and when they were needed.

"Juha is scheduled to come on about 10 years after start-up," Graham noted

This is all very positive, however, the wording of possibly waiting until Q4 2013/ Q1 2014 to commit is a delay and time for shorts to play more unless I am misinterpreting something.

"A commitment is likely by the end of this year, or possibly the first quarter of 2014.

The ExxonMobil propensity to surprise the PNG public first came with its announcement it was in talks with InterOil for possible purchase of 4.6 trillion cubic feet of gas from the Elk and Antelope fields in Gulf Province as potential feed for the third train at the LNG plant near Port Moresby."

I believe the author is referring to FID on the PNG LNG expansion, which will follow closure of Exxon's SPA with InterOil.  FID by year-end does not imply any delay and would require execution of the SPA to occur very soon.