Three LNG plans in Papua New Guinea

Here two articles (one from November last year, the second one from April this year give a nice overview of the three LNG plans in PNG. As always, the emphasis (and some comments) is ours.

PNG LNG projects jostle for position
Thursday, 3 January 2008 (First published in the November 2007 issue of Petroleum magazine)

  • ALMOST a year on from the scrapping of the PNG–Queensland gas pipeline project, several liquefied natural gas projects have emerged as Papua New Guinea’s best chance of commercialising its substantial gas reserves. While one proposed PNG LNG project has already fallen by the wayside, others are still looking very much viable.
  • A memorandum of understanding between Oil Search and BG (formerly British Gas) on a two-train, 7.2 million tonnes per annum project based on the Kutubu and Juha fields has been allowed to lapse. But rather than indicating problems in developing PNG LNG, this reflects poor results from recent drilling at Juha and the significant progress made on a rival ExxonMobil-led scheme that relies mostly on Hides but is also likely to draw on Juha.
  • Participants in the study for the ExxonMobil project include not only Oil Search, but also Australian majors Santos and AGL Energy and Japan’s Nippon Oil. They are hoping for first LNG in 2013.
  • But another major LNG project led by Texas-headquartered, Toronto-listed InterOil, investment giant Merrill Lynch and their subsidiary, Liquid Niugini Gas, is also advanced and aiming at first production by 2012.
  • And a third, much smaller, project involving juniors Liquefied Natural Gas Limited and Papua Petroleum could also be operating by late 2011 or early 2012, according to its proponents.
  • Highlands to coast. The ExxonMobil-led project will source gas from gas fields in the Southern Highlands and pipe this to a liquefaction plant on the coast, possibly at Port Moresby but more likely at Cape Possession on the Gulf of Papua coastline northeast of the capital.
  • In planning the pipeline from the Highlands, ExxonMobil and its partners are making good use of much of the preliminary work done for the now-defunct PNG–Queensland pipeline. ExxonMobil is proposing one large train capable of producing about 6.3MMtpa of LNG. The project is based on reserves at the huge Hides gas deposit, held by ExxonMobil, Oil Search and Santos, and nearby deposits at the Angore and Juha fields. It could also draw on the Kutubu field, in which AGL is a partner alongside ExxonMobil and Oil Search.
  • Oil Search has estimated the project would need 7.7 trillion cubic feet of gas over 20 years. Hides alone has about 6Tcf and other fields, including oil fields, would provide more than another 3Tcf. Oil Search has estimated a capital expenditure of about $US10 billion.
  • Southeastern gas via Port Moresby. Liquid Niugini Gas is planning a two-train development located next to InterOil’s existing Napa Napa oil refinery in Port Moresby that will source feedstock from the Elk gas field in southeast PNG. Each train will be capable of producing 4.5MMtpa of LNG and Liquid Niugini claims the project can be built for a relatively modest $US5–7 billion as the pipeline will be relatively short and existing infrastructure will reduce some costs.
  • InterOil says it is certain Elk contains enough gas to underpin the first train and argues that more exploration and appraisal will prove up enough additional reserves to support the second train. However, it is also prepared to consider using third-party gas to help underpin the second train.
  • The company recently upgraded in-place contingent reserves at Elk from 3–15Tcf of gas to 3.5–18.9Tcf after reviewing its Elk-2 appraisal well. Liquid Niugini chief executive Jack Hamilton said the company had previously had some initial discussions and approaches from gas field owners outside of InterOil and the Highlands development.
  • “We need to push along with our understanding of Elk over the next few months before we actively start to ramp up those third-party discussions,” he said. Merrill Lynch, which owns a third of Liquid Niugini, has already committed to take 100% of the offtake volume that it will in turn market to Asian and US buyers.
  • Hamilton said in addition to traditional LNG buyers Japan and Korea, both China and India are emerging as large markets, and PNG is also well positioned to supply LNG to the US west coast.
  • Progress on the project has also advanced rapidly. Liquid Niugini has already completed pre-FEED (front-end engineering and design) work on the project, and Bechtel and Chicago Bridge & Iron have been short-listed for the FEED contract with an agreed engineering, procurement and construction contract as an option. This is expected to be awarded in late November or early December.
  • Small player aims at Foreland LNG. The final scheme is Liquefied Natural Gas Limited’s smaller 1.3MMtpa LNG project, which could slip ahead of the two large projects to start LNG production in mid-2011. LNG Limited claims its technology allows for a fast development schedule of about 30 months compared to more than four years for traditional large-scale LNG projects.
  • The company is looking to develop either an LNG plant on Umuda Island in the Fly River delta or a floating LNG plant that would be anchored off the island but could be redeployed elsewhere at a later date.
  • Whichever option it selects, the company is planning a 1.3MMtpa first train and could add a second train later. The total capital cost for the full two-train option would be $US700–750 million. The Umuda Island project would be a gas-gathering system drawing not only on fields in which LNG Limited and related companies have stakes, but also other discoveries in the Foreland Basin of south-central and southwest PNG.
  • Umuda Island is close to about 10 Foreland gas fields, which cumulatively have total known gas reserves of about 3.5Tcf. It is also near licences owned by LNG Limited subsidiary Gas Link Global, which owns a 10% stake in the Oil Search-operated Uramu gas field and a 20% stake in Papua Petroleum, which holds four licences in PNG’s Western province. Gas Link acquired its stake in Uramu after buying Gedd PNG. The field has 318 billion cubic feet of 2P gas reserves.
  • The other joint venture partners are Oil Search (operator) with a 49.55% stake and Woodside Petroleum with 40.45%. LNG Limited hopes the field partners would see the benefits in supplying gas into the company’s proposed LNG project. “But we would require gas from additional fields to complement any Uramu gas to make it viable,” LNG Limited managing director Maurice Brand said.
  • The Papua Petroleum licences are currently the subject of negotiations with a major party to fund seismic and drilling through a farm-in. LNG Limited is currently trying to secure gas supplies and is carrying out studies on the various options before it. This is expected to be followed by a feasibility study that it aims to complete by December next year with financial close targeted for the March 2009 quarter.
  • The company has set its sights on the traditional North Asian LNG markets and Brand said the company expected to have no shortage of buyers. “Most of the willing buyers – and there are many of them in this environment, particularly if one can supply LNG in the 2009-2012 period – are more interested in certainty in supply and timing for that supply than in price,” he said. “Clearly this is what we want to take advantage of in our approach to gas commercialisation.”
  • Government backs LNG. Liquid Niugini’s Jack Hamilton says his company’s project is expected to bring about $US20 billion in direct and indirect benefits to the PNG economy and by 2020 would be contributing 15–20% of the country’s gross domestic product. The ExxonMobil project’s impact would be similar. A 1991 study done by the Australian National University on the impact of the North West Shelf LNG found that it hit its peak impact in its seventh year of operation, creating about 90,000 indirect jobs in Australia.
  • “How that translates to a developing country I’m not sure, but I would have thought the impact would be higher,” Hamilton said. The PNG Government is keen to reap the benefits presented by the various LNG projects and has appropriated 500 million kina ($US174 million), set aside in 2005 and 2006 for financing equity in the now-defunct PNG–Australia gas pipeline project, for a gas equity trust fund to finance state participation in future gas commercialisation projects.
  • Following July’s national election, the PNG Government has now refocused on the various LNG projects. Oil Search, which has a 36.6% stake in the ExxonMobil-led pre-FEED study, said recently the new PNG Government had reiterated its support for the ExxonMobil-led LNG project and had expressed its desire to see the project proceed in a timely fashion.
  • “Discussions recommenced with the Government in September on progressing the development, with a commitment on both sides to finalise issues such as fiscal arrangements, to facilitate front-end engineering and design entry,” Oil Search managing director Peter Botten said.
  • Hamilton said Liquid Niugini had recently resumed negotiations with the PNG Government on a project agreement that would set the framework for government process and fiscal support for the project. He was hoping these would be concluded by the end of the year.
  • Brand said while the impact of the LNG Limited project would not be equivalent to the larger developments, it would still bring significant benefits to the country. “It would offer a market to existing gas suppliers a lot quicker and at a higher price than perhaps what is being contemplated for the mega-schemes,” he said.
  • These three projects and their associated pipelines and other infrastructure could also help kick-start other forms of gas commercialisation, such as a potential methanol-dimethyl-ether plant that Oil Search is considering. All three PNG LNG groups have said they are keen to get their projects operating as soon as possible.
  • “I am a very firm believer in the window of opportunity,” Hamilton said. “In the LNG world, we know it is wide open at the moment, and it will remain open if you can supply in the early part of the next decade.” But the sellers’ market would not be there forever, according to Hamilton, as 50MMtpa of LNG from Australia alone is expected to come onstream from 2013-16. “I would rather be ahead of all that than try to be in the middle of it,” he said.

The article, apart from a nice overview, is particularly interesting for two things:

  1. The Asian buyers are more interested in security of supply than price
  2. The possibilities of a small scale, even floating, much cheaper LNG project by LNG limited and Papua Petroleum. It shows that even with a relatively small amount of gas and limited funds, there is quite a bit you can do.

PNG pushes towards LNG
Tuesday, 1 April 2008 Bevis Yeo

  • PAPUA New Guinea has no liquefied natural gas industry today but could be hosting three separate projects within just a few years. Liquid Niugini’s proposed PNG LNG plant near InterOil’s Napa Napa refinery. Wordplay is the order of the day at the big end of town, where the Liquid Niugini Gas and PNG LNG ventures are competing with each other, not only in devising clever acronyms, but also in racing towards ambitious start-up dates.
  • These two heavyweight consortiums are working on world-class projects near Port Moresby, while LNG technology junior Liquefied Natural Gas Limited is planning a more modest Gulf of Papua development.
  • Liquid Niugini Gas. Backed by InterOil, Merrill Lynch and Clarion Finanz AG affiliate Pacific LNG operations, Liquid Niugini Gas is emulating Woodside Petroleum’s Pluto project in its haste to convert a discovery into a liquefaction project.
  • Liquid Niugini began the year by selecting Bechtel to carry out the front-end engineering and design (FEED) for a plant to be located near InterOil’s Napa Napa oil refinery on the outskirts of Port Moresby, as well as engineering, procurement and contracting work for the development.
  • But chief executive Jack Hamilton has admitted the project might not meet its goal of achieving first production by 2012. “2012 is still the target, but it is under pressure due to not yet having closed out the project agreement with the PNG Government,” Hamilton said.
  • On the gas supply side, InterOil expects to have results of Elk-4 appraisal well in March. The company will follow this up by drilling the Antelope well immediately afterwards. The Elk-Antelope structure has current in-place contingent reserves of between 3.5-18.9 trillion cubic feet of gas.
  • The low-side estimate would supply the company’s planned 5 million tonnes per annum first train, provided some third-party gas could also be sourced. The high-side estimate could be more than enough to supply the second train that Liquid Niugini hopes to add at some point in the future.
  • PNG LNG. Meanwhile, the parties in the $US11 billion PNG LNG joint venture have signed a joint operating agreement under which operator ExxonMobil will also act as the JV’s marketing representative.
  • ExxonMobil holds 41.6% in the venture, Oil Search has 34.1%, Santos 17.7%, AGL Energy 3.6%, and Nippon Oil 1.8%. The remaining 1.2% is held by landowner interests. These stakes are expected to change when the PNG state nominees join the project at a later date, with Oil Search saying it expects its interest in PNG LNG to drop to 28-31%. In addition, AGL is considering selling out of the project.
  • ExxonMobil Development company vice president Al Hirshberg said the joint venture would now focus on resolving the fiscal terms and related matters with the PNG Government that are critical for the project to enter the FEED phase.
  • Project partner Oil Search said in January that pre-FEED technical studies had determined the optimum size for the project to be a 6.3MMtpa plant with two trains to be located near Port Moresby.
  • PNG LNG will source gas from the Hides, Angore and Juha fields as well as associated gas from the operating Kutubu, Agogo, Gobe and Moran oilfields in the Southern Highlands and Western Provinces.
  • The gas will be treated at a plant at Hides before being piped to the liquefaction plant, expected to start production in 2013. Oil Search managing director Peter Botten had previously said it was possible the two big projects could end up sharing some infrastructure, but despite their common location near Port Moresby, neither Liquid Niugini Gas nor PNG LNG appear to be making any such plans at this point. Liquid Niugini’s Hamilton says the focus for now is simply to get the project off the ground.
  • LNG Limited. While it hasn’t made any major announcements yet, Liquefied Natural Gas Limited is still confident of beating the two larger players to the market with its 1.3MMtpa Gulf of Papua LNG project, which is aimed at a late 2011 or early 2012 start to production.
  • Managing director Maurice Brand said the company hopes to announce its preferred site in April. LNG Limited is looking to develop either an LNG plant on Umuda Island in the Fly River delta or a floating LNG plant that would be anchored off the island but could be redeployed elsewhere at a later date.
  • “We are working more towards an onshore possibility,” Brand said. LNG Limited was aiming for a final investment decision on the project around December 2009 and Brand said the company’s work on its Fishermans Landing mini-LNG project in Gladstone, Queensland would help it meet that deadline.
  • “The type of the plant, the contractors and all that will be similar,” he said. “The main issue for us will be that there is a different gas composition for the plant, using conventional gas rather than using coal seam gas.”
  • LNG Limited’s Gulf of Papua project is expected to cost between $US700-750 million and is planned to draw on gas not only on fields in which LNG Limited and related companies have stakes, but also on other discoveries in the Foreland Basin of south-central and southwest PNG.
  • The company has also proposed to spin-off its 66.7% shareholding in PNG-focused subsidiary Gas Link Global to existing shareholders on a pro rata basis in mid or late 2008.
  • Gas Link has a 10% stake in PRL 10 and PPL 240 through its acquisition of Texan explorer Gedd PNG, which is awaiting PNG Government approval.
  • It also owns a 20% stake in Papua Petroleum, which holds four licences in PNG’s Western province that are the subject of negotiations with a major party to fund a seismic and drilling program through a farm-in.

Exciting times for PNG.