Exxon commits to Papua New Guinea

ExxonMobil and its partners have agreed to press ahead with a $15bn liquefied natural gas project in Papua New Guinea that would represent the largest foreign investment in the country to date.

The US group said that, once completed, the PNG LNG deal would treble Papua New Guinea’s exports and more than double its gross domestic product, which stands at around $8bn.

However, Exxon said the project, which is expected to start early next year, still had to conclude sales agreements and finalise financing arrangements.

Neil Duffin, ExxonMobil Development Company president, said that with demand for LNG forecast to nearly treble by 2030, the project would be important in helping meet it, “particularly for the economies in the fast-growing Asia Pacific region”.

The project is the latest in a series being developed in the region as oil and gas groups seek to tap into continued demand from Asia.

In October, a consortium led by Chevron won approval to develop the A$43bn Gorgon LNG project off the western Australian coast.

Last week, Chevron signed a 20-year gas sales agreement to supply 4m tonnes of gas a year from its Wheatstone field in Australia to Japan’s Tokyo Electric Power in a deal worth A$90bn ($82bn).

Andrew Williams, a Credit Suisse oil and gas analyst, said the size and high price of the Tepco/Wheatstone deal was a clear indication of the pressure to secure binding contracts.

The government of Papua New Guinea has a 16.6 per cent stake in the Exxon project.

Exxon holds 33.2 per cent, Nippon Oil has 4.7 per cent and Oil Search and Santos, the Australian listed insurers, have 29 per cent and 13.5 per cent.

PNG LNG has already signed binding agreements for the sale of a combined 3.8m tonnes per annum with China Petroleum & Chemical Corp and Japan’s Tepco.

However, the project consortium has yet to conclude sale contracts for the remaining 6.6m tonnes of capacity with Osaka Gas of Japan and CPC, Taiwan’s state-owned refiner.

Financing for the construction of the pipeline and liquefaction plant – thought to be 70 per cent project financed by US, Japanese and Italian export credit agencies – has not been finalised.

But analysts say that Exxon’s triple A rating, together with a commitment from Japanese buyers, should encourage export credit agencies to step up to the deal.

PNG LNG is considered to be the best underdeveloped gas project outside Qatar.

As the gas fields are situated onshore in the highlands, project partners can use off-the-shelf technology, which is less costly than developing offshore platforms.