PNG LNG has the most attractive economics of all the LNG projects under construction in the region, and it's expansion would further improve it's commercial prospects. The proposed deal with (with IOC) would facilitate it's extension to four trains.
The lowest cost and simplest option for expansion feedgas is the Hides firld. This is already part of the PNG LNG project, but needs further appraisal to confirm reserve upside. An alternative would be the more remote and higher-cost P'nyang field, which would need a 100km tie-in pipeline to existing infrastructure. P'nyang is not part of the PNG LNG project and would also need a gas sales or unitisation agreement between the partners.
An Interoil tie up woud introduce a third supply option for train three, or allow an accellerated timetable for train four. Economics of scle could be achieved by building trains three and four concurrently, while Elk/Antelope deal would delay the need for further high cost exploration to find gas for those trains. Exploration wells in the highlands of PNG are amongst the most expensive onshore wells in the world at upwards of US $100 million.
Exxon has a number of options to bring Elk/Antelope gas into PNG LNG. These include:
* Revised unitisation agreement, with Exxon/Mobil increasing it's interest in the project
* Existing unitisation agreement extended to cover Elk/Antelope, with the partners reimbursing Exxon/Mobil
* Tolling agreement, where Exxon/Mobil pays a fee to liquefy Elk/Antelope gas through PNG LNG
These options would allow all partners to benefit from expanding the existing project. However, the level of reward available may depend on each partner's ability to commit to the sizeable investment required to expand the project.
PNG LNG expansion appears to be a high priority for ExxonMobil, perhaps more so than the proposed 5.2 mmtpa expansion of Gorgon (which was just put on ice) or 6 mmtpa Scarborough FLNG - it's possible two growth projects in Austrailia.
|
Everybody's a Winner:
An agreement would allow ExxonMobil to effectively lock it's main competitors out of PNG for the foreseeable future. There are few other material entry opportunities in the short to medium term, except for exploration or acquisitions.
An agreement would allow Interoil to monetise Elk/Antelope gas prior to it's retention lease expiry in 2015, finally realising the value which the market has attributed to it since discovery. It would sidestep the significant capital outlays, which would be larger than it's current market capitalisation, and risks inherent in constructing an LNG facility. However, InterOil has the rights to the gas over and above ExxonMobil's requirement, with the option of developing the gas through it's own LNG fcility at a later date or entering into a further agreement with ExxonMobil.
For the PNG government, an agreement improves the odds for the timely development of Elk/Antelope. Realising economic benefits from this resource will help rejuvenate it's slowing economic growth, as capital investment in the foundation LNG project begins to tail off. Once onstream, the PNG LNG project is expected to increase the country's GP by over 20%. The opportunity to build on it's gas export industry is vital to the longer term outlook of the PNG economy.
TDGFDASAFP. All else is BS.
