Deal with the LNG politics

Except controlled experiments in a scientific laboratory, nothing in this world happens in total isolation.
We cannot afford to ignore what is happening in the rest of the world because, sooner or later, it will impact here.
That should be sound advice for policy and decision makers in politics or business.
The present confusion surrounding the liquefied natural gas project (or projects) warrants a bird’s eye view of what is happening in the region and how it might impact PNG’s prospects.
But first, a quick look at the PNG prospects for LNG.
The PNG LNG project, the first one to get the nod from the Government in May 2007 has entered front end engineering and design (FEED) stage.
FEED does not indicate any firm commitment by developers that the project can proceed.
We need only to remember the gas pipeline to Queensland project and the fact that it too entered FEED before the Australia Gas & Light (AGL) company pulled out. And PNG hopes were gone with the wind.
The PNG LNG FEED works were halted by a court injunction taken out last Aug 10 by Hides gas field landowners claiming there was no National Government environmental policy in place. A decision will be handed down today as to whether or not the injunction will be extended.
While PNG LNG has been progressing along that stop-go train, a second LNG project by the InterOil-led Liquid Niugini Gas is also being promoted by the Government. It is not certain that a Gas Agreement is in place with this project.
Still Liquid Niugini Gas appears to be a serious contender and while there are more than adequate gas reserves in PNG to support two or more LNG projects, the same cannot be said of project financing – particularly in light of other projects within the region.
Australia is now promoting gas as one of its biggest future resource projects – beating both coal and iron ore – the long-time profit lifelines of Australian giants like BHP, Rio Tinto, Fortescue and Macarthur Coal.
Australia has two LNG plants already – one at Karratha to service the Northwest Shelf off Western Australia and the other is a ConocoPhillips facility in Darwin. There are talk of at least four new LNG terminals in the Queensland port town of Gladstone.
Australia plans to increase its LNG production from the current 16 million tonnes per annum to 60 million tonnes by 2020.
Given that scenario in Australia with all the trappings of a first world nation, scarce investment finance is likely to flow down that way rather than to PNG. Already, US energy giant, ConocoPhillips has invested US$5 billion in the CSG deal in joint venture with Origin. A A$5.6 billion takeover bid has been made for Queensland Gas by UK-based BG Group.
These are very real indications that the investment dollar can very easily bypass PNG to Australia, Indonesia or Malaysia, which are all looking at expanding their LNG industry as demand for gas energy increases worldwide.
When AGL pulled out of the pipeline to Queensland deal, it simply said: “Too expensive.”
No other explanation was necessary or offered.
The pipe dreams evaporated and PNG ended up back at the start – with trillions of cubic feet of gas in the ground and nothing to show for the thousands of man hours wasted in negotiations, millions of kina spent in preparatory work going up in a puff.
We must learn from that lesson. And it pays to be conscious of what is going on in the region, particularly in this industry.
The market for LNG is opening up and it can only increase throughout Asia and the world.
And while PNG reserves are sufficient to support two or three projects to supply that market, the problem is whether or not PNG can attract the billions of kina required to build LNG plants and then whether or not it can secure the market.
In this business, they say you have to have a market before you can secure development finance.
Every legal battle that halts progress, every political uncertainty or contradiction will surely impact PNG’s chances.
A couple of the big companies involved in PNG, ExxonMobil for instance, are astute enough not to place all their eggs in one basket. It has interests in Gorgon and Scarborough LNG projects in Australia too.
Santos has interests in Darwin LNG, Queensland LNG as well as here. If these companies feel their shareholders’ interests are not served well here and might be served better elsewhere, they will cut their losses and run.
PNG decision makers and landowners must be conscious of that.