Hopes on hydrocarbons wrong

AT the Sydney Mining and Petroleum conference last November, the name Wilderbeest made its entrance into the public domain.
Wildebeest, a member of the antelope family which looks to us more like a cross between a long horn bull and a buffalo, is native to Eastern and Southern Africa.
For whatever the reason that wild African beast has lent its name to the newest gas field in Papua New Guinea.
The name has been known among industry circles for some time but following Sydney, it is now rolling easily of the tongues of politicians and commentators as the next big LNG project.
As far as we know it is not yet a proven up field and that information must come from ExxonMobil, the license holder over the field.
So far we know that ExxonMobil and its partners have spent over K2 billion in exploration activities and that following seismic tests in 2022, there is suggestions that the field is larger than the PNGLNG and Papua LNG gas fields combined.
So now there is PNGLNG, a producing field, with Papua about to enter front end engineering and design stage, and P’nyang likely to follow, with Pasca and now Wilderbeest in the offing, it is easy to forecast an economic blastoff into the stratosphere for PNG.
Yet other developments, further afield and not terribly visible to PNG at present, would command extreme caution.
PNG needs to be careful in predicating its economic future upon the hydrocarbon industry alone.
Experts say the LNG industry faces unprecedented changes and challenges.
It seems the market is oversupplied at present. Record high natural gas production, flat demand, and high inventories resulted in US benchmark natural gas prices averaging $2.57 per million British thermal units (MMBtu) in 2023, down by around 62 per cent compared to the 2022 average, the US Energy Information Administration has reported.
Unless demand strengthens and with a number of new gas projects coming into production, this situation might remain into the foreseeable future.
The Oxford Institute for Energy Studies published by a Robin Baker who has had more than 35 years in the banking sector lending to the oil and gas business who advises similar caution.
Baker says the Covid-19 crisis exacerbated an oversupplied market and the “speed and pattern of demand recovery is unclear”.
“The range of uncertainty, in the level of future demand and pattern of supply, seems higher than usual,” the same author says.
Another issue which poses serious uncertainties in climate change. Government’s driven by an electorate that is increasingly becoming climate conscious might lean more towards changing policy and legal regimes surrounding fossil fuels.
The campaign has already bagged the coal industry which is not attracting any financing and the baying for more blood is growing louder by the week.
Lending institutions like major banks export credit agencies are feeling the heat also and while they might not give in, they are listening and that can lead to some becoming convinced by the lobby.
The fact is alluded to by our own Paul Barker of the Institute of National Affairs on our business pages today.
Pressure by regulatory challenges in recent weeks in the State of California, for instance, has had Exxon being forced to write down its California assets by about US$2.5 billion (K9.25 billion) as of the fourth quarter of 2023.
The other energy giant, Chevron which is headquartered in California has lobbied long and hard against legislation but failed and is confronted with writing down between US$3.5 billion (K12.9 b) and US$4 billion (K14.8 b) on its domestic operations, it has been reported.
Demand for LNG, which is itself a cleaner energy than say coal or oil, is still high and the world’s financial markets are varied and large to be able to carry on the LNG business for the immediate to medium term but the cost of developing LNG projects are going to go up, there is no doubt.
Future funding maybe increasingly be subjected to environmental vetting.
Under such circumstances, it is pertinent that PNG does not hinge its economic future on the hydrocarbon and even mining business and diversifies into agriculture which has always been there and which has been fed rhetoric every year since Independence.