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Socio-economic benefits from PNG’s coming resources boom are unimaginable

April 29th, 2008 · No Comments

Here is an article by columnist Brian Gomez which appeared in on Thursday, 20 March 2008. I reprint it here, as a subscription is necessary. It shows how the world resource boom is having an impact on Papua New Guinea in general, but a couple of conclusions can also be drawn with respect to the impact on IOC. 

The beneficial effect on IOC are twofold:

  • the dearth of LNG in Asia, which has led to very substantial pricing premiums of LNG in Asia vis-à-vis the rest of the world, makes the thesis that the proposed LNG facility by IOC, Merrill Lynch, and Clarion Finanz (all 1/3 owner of Liquid Niugini), will not receive finance look rather silly. Even if the competition wins out on the race to build an LNG facility, IOC will likely have an outlet for the gas discovered at Elk
  • the more than doubling of the economy in a mere six years the article talks about will translate in an even bigger increase in fuel demands in PNG, as the triggers to that growth are very energy intensive project (an LNG facility is basically a giant refrigerator, for instance). This bodes very well for IOC’s refinery, as it has plenty of spare capacity to meet those exploding demands.

Here is the article:

This column has generally taken a bullish view of Papua New Guinea’s potential but recent developments are way beyond anything this writer could have imagined even a couple of years ago.By Brian Gomez

This thought comes to mind following last week’s release by ExxonMobil of an independent study by ACIL Tasman on the economic impact of its 6.3 million tonnes a year liquefied natural gas project in Papua New Guinea.

No one appears to have predicted that this project alone, as calculated by ACIL Tasman, will more than double the size of PNG’s economy within a mere six years. That translates to an annual GDP growth rate of 15-16%.

Some projections suggest why the impact will be nothing short of massive.

ACIL estimates that the country’s oil and gas exports will increase four-fold with the annual value of LNG output estimated at K11.4 billion ($US4.2 billion) compared with oil and gas exports worth K2.6 billion in 2006.

Tax, levy and royalty payments to the PNG Government and landowners was anticipated to average K2 billion a year in the first 10 years and to rise to K3 billion annually for the remaining 20 years of operation.

Over the 30-year life of the project, cash flow to the Government and landowners will total K114 billion. Visualise that against a total national budget in 2007 of K7 billion.

“The scale of the project relative to the current size of the PNG economy is such that the modelling results can only be regarded as indicative estimates,” ACIL Tasman noted.

The mind boggles at the additional expectation that the InterOil-led consortium, Liquid Niugini Gas, is fast-tracking another LNG venture of a similar scale, in about the same time frame as ExxonMobil.

The market is anxiously awaiting drilling results from InterOil’s Elk-4 to better ascertain the quantum of the gas resource and if it is adequate for the planned LNG facility.

Some of the expansionary impacts of LNG will be detrimental to key sectors such as agriculture and forestry. The increased value of the kina, along with other inflationary impacts, will make it much more difficult for them to remain competitive.

LNG is only one bullish segment within PNG’s evolving resources scenario with an even more dynamic scenario on the minerals front.

Next year the US$1.3 billion Ramu Nickel project will come onstream, as will Harmony Gold’s Hidden Valley gold-silver mine.

At about this time Marengo Mining expects to complete a feasibility study for a $US1 billion dollar copper-molybdenum mine with construction possibly being completed as early as 2011, or 2-3 years prior to start-up of the ExxonMobil LNG project.

This is the same year that Lihir Gold expects its ramped-up mine to become a million ounce-plus annual gold producer following expenditure of nearly $US700 million on a huge autoclave and associated processing facilities.

Harmony also plans to crank up another billion dollar operation at its Wafi-Golpu project and Xstrata has announced plans to spend $US2.6 billion to commence exports from its Frieda River copper-gold project in 2016.

After the dearth of projects over more than a decade and a severe rundown in capacity, it is impossible even with the closest scrutiny of reports, such as the latest one from ACIL Tasman, to visualise the incredible socio-economic impacts that will flow from resource sector developments.

This is a nation where, since independence 33 years ago, most people – some 80-85% of the population – have seen little or no change in their standards of living and subsistence lifestyles.

For many their lives are about to be transformed in ways no one today is capable of imagining.

Tags: IOC