by BRIAN GOMEZ
PNG now has four separate LNG proponents

The current spate of activity revolving around proposed LNG or liquefied natural gas projects is nothing short of amazing and could not have been foreseen even two or three years ago.
The crucial factor for PNG’s gas suddenly coming of age – the largest proven gas field at Hides was discovered exactly 20 years ago – has been the upsurge in oil and gas prices and widespread concern that the day of ‘peak oil’ may be coming.
‘Peak oil’ refers to the expectation that in coming years, maybe as soon as the next decade, world oil production would hit a peak and begin an inexorable decline.
Even though the rate of new oil discoveries has been declining for some considerable period, ‘peak oil’ is only likely to occur if trouble in the Middle East, or conscious policy-making by these countries, stifles production and export growth.
World prices have reached record highs recently because of supply constraints exercised by OPEC for the purpose of ensuring high export revenues, and because of burgeoning demand from China and India.
As a result of these trends, the world focus is rapidly shifting to natural gas which happens to be a much cleaner fuel than other alternatives, particularly coal.
If markets are easily accessible natural gas is easy to transport via pipelines compared to the highly polluting coal, one of the main contributors to global warming.
For this reason where companies in previous decades shunned the search for natural gas, these days it is regarded as a premium fuel and a potential company maker for many corporations.
It was the discovery in Queensland and New South Wales of large quantities of coal bed methane – natural gas tapped from within coal deposits – that led to the demise early this year of PNG’s ambitious long-held dream of piping natural gas across the Gulf of Papua for sale to Australia.

Companies in pursuit of LNG
But as Oil Search managing director Peter Botten said, in announcing this decision, studies had shown it would be much preferable from a company, and a national viewpoint, for the gas to be converted to LNG for export or used as a feedstock and energy source for two petrochemical plants now under active consideration.
At the time this decision was taken only InterOil, and its joint venture partners, had been seriously pursuing the idea of LNG, based on their Elk discovery, where the size of the gas reserves will only be known late this year.
Oil Search itself is involved in two separate LNG studies. The first is led by ExxonMobil, the world’s biggest oil company, which is assessing a plant that can produce between five million and 6.5 million tonnes a year.
This project is based largely on reserves at the huge Hides gas deposit and nearby deposits at Angore and Juha.
Recent drilling has downgraded Juha’s potential from a high estimate of four million trillion cubic feet to half that quantity.
Botten believes there are adequate gas reserves in the oil producing fields at Kutubu, Gobe and Moran to support a separate project and Oil Search together with British Gas are assessing the economics of such an operation.
However, the companies in this group also have an option till the end of June to join forces with ExxonMobil, raising the prospect of a two-train LNG operation.
The likelihood, however, is that two separate trains will be built, one by ExxonMobil and the other by BG-Oil Search.
Industry sources said Oil Search would probably prefer not “to have all its eggs in one basket” and there was also a strong prospect that the highly reputable BG group could built a more cost-effective, and thus more profitable, LNG plant.
The general expectation is that an LNG complex would be built alongside InterOil’s Napa Napa oil refinery in Port Moresby, but it is understood ExxonMobil is also investigating another potential island location in Milne Bay.
There is no doubt, though, that InterOil and its partners, Merrill Lynch and Pacific LNG are determined to site their LNG facility next to their oil refinery, where there are synergies to be gained.
A separate venue outside of Port Moresby does make strategic and economic sense because of the tight time schedules involved in these three ventures.
InterOil says it is targeting for a 2011 start-up, BG-Oil Search in 2012 and ExxonMobil in 2012-2013.
This week a new player has entered the scene. A small listed company based in Perth, Liquefied Natural Gas Ltd, has announced plans for a million tonne a year LNG plant that will utilise gas discovered in the Forelands area.
LNG told the Australian Stock Exchange it has the backing of its main shareholder, Golar Energy, a company listed in Oslo and Nasdaq, that is the world’s largest independent operator of LNG tankers.
LNG, which is in planning a 3.45 million tonne a year LNG facility on Queshm Island in Iraq, has taken up a 20% stake in Papua Petroleum and is actively seeking to link up with other companies that have significant gas discoveries that remain undeveloped.
Only a few days prior to the LNG announcement, The National reported that Petroleum and Energy Minister William Duma had warned companies with gas deposits in the Forelands they should firm up plans for early development of their reserves.
Even if only one or two of these projects come off in the next five to seven years, LNG will provide PNG with a massive bonanza in investment and construction activity and an upsurge in employment.
An LNG project would require a pipeline from the gas fields to a coastal location, where a multi-billion dollar liquefaction facility, much like a giant refrigerator, will convert the gas into a liquid.
This will be shipped in expensive cryogenic tankers to overseas markets, where LNG is regasified for local distribution.
Once operational, these projects will provide PNG with a big boost in export revenues and, eventually, with a much bigger corporate tax base.