PNG’s gas industry could benefit from Japan’s move for a more secure supply base. Source: Supplied
THERE could be a silver lining for Papua New Guinea LNG producers in recent oil price slides and geopolitical instability, with Japan becoming increasingly interested in security of supply.
This is the view of Credit Suisse analysts who released a report over the weekend that said Japan, the world’s biggest LNG buyer, was no longer as interested in fostering LNG development from the US, Russia and East Africa as it had been a year ago.
“We believe we are moving into a new phase where the world’s largest LNG off-taker will de-emphasise its recent focus on US-linked LNG pricing and refocus on energy security in light of the geopolitical risks concerning gas supply (US-Russia) and marine disruptions in the South China Sea, which 60 per cent of Japanese LNG currently passes through,” Credit Suisse said.
This could see Japan underpin development of further LNG projects in PNG, and buoy the fortunes of Oil Search and Santos, which are partners in the recently started PNG LNG plant, and InterOil, which operates PNG’s biggest undeveloped gasfield.
“As we started 2014, Japan appeared keen to support greenfield LNG capacity in Russia and was interested in the East African developing opportunities in Mozambique and Tanzania,” Credit Suisse said.
“However, developments in Ukraine reminded Asian buyers that gas can be a geopolitical tool — and we suspect planning in Japan may have de-prioritised Russia as a greenfield LNG supply source.”
Sliding oil prices have also taken the gloss off Japanese plans to foster US LNG development. Credit Suisse estimates that at recent averages US LNG was no cheaper than oil-linked LNG from Australia and PNG.
A recent visit to Australia and PNG from Japanese Prime Minister Shinzo Abe was probably driven to some extent by a desire to build LNG supply relationships, the analysts said.
Unfortunately, the benefits are unlikely to foster New Australian LNG projects. “For Australia, Japan probably already has contracted as much as it would like to see — hence new capacity would likely need to find buyer interest outside of Japan,” Credit Suisse said.