Total and partners sign gas deal with Papua New Guinea

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A Total petrol station displays its prices in Berlin (file). The French firm and its partners yesterday signed a long-awaited deal with Papua New Guinea that will allow initial work to start on a $13bn plan to double the country’s liquefied natural gas exports.

France’s Total SA and its partners yesterday signed a long-awaited deal with Papua New Guinea that will allow initial work to start on a $13bn plan to double the country’s liquefied natural gas exports. Developing the Pacific island nation’s gas reserves is seen as crucial to its economy as LNG is its biggest export earner, while demand for the fuel is surging in international energy markets. Total partner Oil Search said in a statement the agreement would allow the parties to start early engineering and design work, including tendering for contractors, for Papua LNG, a project led by Total, with Exxon Mobil Corp and Oil Search. They now aim to make a final investment decision in 2020, targeting first production in 2024, Oil Search said.


Australia’s Oil Search had first hoped the agreement with the government would be sealed in 2018, as the partners are racing against LNG projects in Canada, Mozambique, Qatar and the United States to meet an expected supply gap in Asia in the early 2020s. The agreement was delayed after an earthquake hit PNG in February 2018, which sapped government resources and slowed negotiations over issues such as how much gas from Papua LNG would be reserved for the domestic market and how the government’s share of costs would be managed. “This is a major milestone for the Papua LNG project,” Oil Search managing director Peter Botten said in a statement. Papua LNG plans to develop the Elk and Antelope gas fields to feed two new production units, or trains, to be built at the PNG LNG plant run by Exxon Mobil.


At the same time, Exxon Mobil plans to add a third new train at PNG LNG, to be fed with gas from its existing fields and a new field, P’nyang, down the track. Together, Papua LNG and the Exxon Mobil expansion are set to roughly double exports from the PNG LNG plant to 16mn tonnes a year.Analysts estimate the overall expansion will cost around $13bn. “It has taken longer to get the gas agreement signed than expected. But it is completed and on reasonable terms. LNG expansion is now inevitable,” Bernstein analysts said in a note. An agreement on the P’nyang development is expected to be signed in the current quarter, said a spokesman for PNG’s state-owned Kumul Petroleum.


“Dialogue is ongoing with the PNG government to conclude the required gas agreement for the P’nyang project,” Exxon Mobil said in an emailed statement. Under the deal signed yesterday, the government will gain a 22.5% equity stake in the Papua LNG project. Total, Exxon and Oil Search have agreed to shoulder the government’s share of the costs incurred leading up to a final investment decision until production begins. “We are particularly pleased that the joint venture partners have agreed to assist Kumul… and that brings certainty to (Kumul) exercising its fully equity entitlement of 22.5%,” Kumul Petroleum managing director Wapu Sonk said in a statement.


However, the government will have to fund its equity share of the overall $13bn capital cost of the projects, which would be roughly $900mn, assuming construction is 70% debt-financed. The agreement also requires the companies to reserve around 5% of the gas for the domestic market, a key provision to boosting power supply in the impoverished South Pacific nation. “We are also delighted that this gas agreement includes provisions to supply gas to the domestic market at competitive prices,” Sonk said. Total is expected to comment on the agreement when the Paris bourse opens.

Sources and photo-credits: Reuters, Gulf Times