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Pacific LNG Examines Floating LNG for Papua New Guinea Project
By Dinakar Sethuraman
Jan. 25 (Bloomberg) — Pacific LNG Operations Ltd., developer of a liquefied natural gas venture in Papua New Guinea, may use a floating terminal to exploit reserves faster than a conventional plant, to help it attract equity partners.
Pacific LNG and InterOil Corp. are exploring floaters to chill the fuel before an onshore production unit starts operation by 2015, said Henry Aldorf, Pacific LNG’s newly appointed president. The partners are offering about 30 percent in gas areas in Papua New Guinea, in the proposed LNG plant and a share of the cleaner-burning fuel, he said.
“We must be the only project in the world offering a stake in upstream, midstream and downstream in a super low-cost project with a huge amount of gas and associated liquids,” Aldorf, who spent 32 years with Unocal Corp. and Marathon Oil Corp., said in an interview in Singapore. “We are in the process of looking for industrial and strategic investors.”
Exxon Mobil Corp., InterOil and Talisman Energy Inc. may boost Papua New Guinea to the second-largest LNG producer in the Asia-Pacific region after Australia by 2015 by producing as much as 15 million metric tons of the fuel, almost enough to supply Taiwan and India based on 2008 demand, said Tony Regan, a Singapore-based consultant at Tri-Zen International Ltd.
Pacific LNG, an affiliate of Clarion Finanz AG, owns 47.5 percent of Liquid Niugini Gas Ltd., which is building the LNG project, and holds about 20 percent of Elk and Antelope gas areas along with InterOil and the PNG government. Clarion, an early investor in natural resource projects, helped InterOil raise $140 million in 2005 to fund drilling, said Carlo Civelli, a Clarion executive. It also owns 6.23 percent in InterOil as of a filing dated Dec. 31, 2009, according to Bloomberg data.
InterOil shares have gained 292 percent in the past 12 months and climbed 12 percent on Jan. 20, two days after Aldorf’s appointment on Jan. 18. The stock fell 2.6 percent to close at $77.01 on Jan. 22.
Aldorf, who gave his age as more than 55, was responsible for setting up Equatorial Guinea’s only LNG plant in 2007 when at Marathon, one of the lowest cost and fastest LNG projects set up from scratch, and was the venture’s first managing director, he said. Aldorf was most recently the president of Marathon International and vice-president of global upstream of Marathon Oil, Pacific LNG said in a statement.
The Papua New Guinea government approved the Pacific LNG and InterOil project last month, also known as Liquid Niugini Gas LNG project.
Liquid Niugini is seeking funds and partners to build a proposed 8 million metric ton-a-year LNG project, with the first onshore production line likely to be about 3.7 million tons in capacity, Aldorf said.
Front-end engineering and design may start in the second half of this year and FID could be as early as 2011, Aldorf said. Construction costs may have come down by as much as 40 percent from peak levels, and projects in PNG do not face labor problems as experienced in Australia, he said.
“In terms of the outlook for the project, in our opinion first LNG in 2015 currently looks optimistic,” said Frank Harris, global head of LNG at the Edinburgh-based Wood Mackenzie Consultants Ltd. “We expect that additional clarity on the size of the resource and the entry of an established LNG player into the project will be required in order for it to reach” final investment decision, he said.
Without new backers, InterOil doesn’t have the financial capacity to build an LNG plant, Evan Calio, an analyst at Morgan Stanley, said in a Sept. 18 note to clients.
The lack of a partner with the cash and technical expertise to construct the plant would diminish the value of InterOil’s PNG gas discoveries, Calio wrote. InterOil may face a cash squeeze within 12 months if one or more partners aren’t lined up soon, he said in the report.
The Liquid Niugini project has a free-on-board breakeven price of about $2.25 per million British thermal units, by far one of the lowest for a proposed venture, Aldorf said.
That compares with $7.49 per million Btu for a rival Papua New Guinea LNG project by Exxon Mobil, including upstream, pipelines and the plant, according to Wood Mackenzie. The consultant doesn’t have an estimate for the Liquid Niugini project. Equatorial Guinea LNG comes in at $1.71.
Condensates, a light oil found in gas, and crude oil, will further boost profitability of Liquid Niugini, Aldorf said.
Interoil may have discovered as much as 228 million barrels of a light oil to kick start a LNG plant in Papua New Guinea, in the Elk and Antelope field, said Phil Mulacek, chief executive officer of the Whitehorse, Yukon Territory-based explorer.
Plans to extract condensates prior to the construction of LNG trains may also prompt development of a floating facility, which is faster to deploy, Aldorf said.
Australia and Papua New Guinea are building a slew of LNG plants to tap the demand in Asia-Pacific for the cleaner-burning fuel to reduce carbon emissions. Imports by China and India rose in 2009 by 53 percent and 23 percent respectively, Sanford C. Bernstein & Co. said in a report in Dec. 11.
LNG is natural gas chilled to liquid form for transport by tankers to destinations not connected by pipeline.