New LNG project ‘substantial’

The Western LNG is not as well-known in comparison to peer projects Papua and PNG LNG.
It aims to aggregate a number of uncommitted Western gas fields to develop 2.2 trillion cubic feet of gas and 64 million barrels of condensate. Australian company Horizon Oil has about a 30 per cent stake in
Western LNG. Horizon Oil chief executive Brent Emmet spoke to Mark Haihuie about it.

Q: Can you give a brief overview of Horizon Oil and its operations?
EMMET: Horizon Oil is an Australian-based company, headquartered in Sydney and we are listed on the Australian Securities Exchange. We have interests in producing offshore oilfield operations in China (Beibu Gulf) and New Zealand of which Horizon Oil’s share is 5200bbls (barrels) of oil per day. In PNG we hold around 9700 square kilometres of development, retention and prospecting licence acreage, predominantly in the forelands area of Western.
We have had a pretty long association with PNG, having been involved since the mid-1990s, initially with relatively small interests in various prospecting licences. Over time, however, we have gradually increased our ownership interests and brought in development partners, including Osaka Gas and Talisman Energy, now Repsol, to help us go about the process of proving up our resources and finalising plans to commercialise those resources.

Q: Horizon Oil has a considerable stake in Western LNG which is not as well-known as PNG and Papua LNG projects. Can you please give an overview of the resource size and joint venture partners involved in this?
EMMET: Firstly, I think it’s important for people to understand that Western LNG will be a substantial project.
In terms of resources, Western LNG will aggregate a number of uncommitted Western gas fields to develop 2.2 trillion cubic feet of gas and 64 million barrels of condensate. Those resource numbers have been independently certified.
The foundation resources for the project are the northern condensate rich Stanley, Elevala-Ketu and Ubuntu fields, which have been well defined by seismic and appraisal drilling. Gas from the southern PukPuk and Douglas fields, which is much leaner in terms of its composition, will come on-stream as a backfill resource after some 10 or so years of production.
In terms of ownership, the gas-condensate fields I mentioned are all contained within four separate licences with a total of just six participants across those four licences. Two of those licences are operated by ourselves while the othertwo licences are operated by Repsol.
On an aggregated basis, and this is before State back-in, Repsol is the largest owner, with just over 40 per cent of the total resource on a barrels of oil equivalent basis, while we hold around a 28 per cent interest. This means that about 70 per cent of the entire project is held by just two partners which will make the process of aggregation relatively straightforward. The remaining 30 per cent of the project is split between Osaka Gas (14 per cent), Kina Petroleum, Kumul Petroleum Holdings and PG3E holding around 16 per cent between them.

Q: What is the design concept for the Western LNG project and can you give a timeline for its development going forward?
EMMET: The development scheme for Western LNG will see gas and condensate transferred from a central processing facility in the north of Western province, south some 520km via pipeline, to a liquefaction facility located in offshore Daru. The liquefaction facility will have a nameplate capacity of somewhere between 1.7 to 2.0mtpa (metric tonnes per annum) and will act as the export point for LNG, condensate and potentially an LPG product stream.
We have deliberately ensured that we have made provision in the design for domestic market access. We have set about this in a couple of ways. Firstly, by making certain that domestic market access to gas is available at various off-take locations, including at our central processing facility and along the pipeline route itself. Secondly, the design of our LNG processing facility will enable us to remove impurities in the gas at the inlet to the liquefaction facility. This will reduce barriers to entry for access to our pipeline and processing facility infrastructure by other resource owners looking to commercialise their resource.
In terms of timeline, we are intending to commence FEED studies by the end of this year, with a view to making FID in late 2019 early 2020.

Q: What are some benefits to the people of Western and the PNG government?
EMMET: I mentioned earlier that Western LNG will be a substantial project and a project of this scale has the ability to be truly transformational. We have seen that with PNG LNG and we believe that Western LNG will have a material impact, particularly in Western.
It will certainly create long-term employment and economic development opportunities in the province. It will also generate significant levels of tax and royalty revenue over the 20-plus-year life of the project. Project infrastructure, roads and wharves, will leave a lasting legacy that will benefit communities and other industrial players and finally, our commitment to the domestic market access will mean there are opportunities for power generation and other industrial consumers of gas, fertilizer, for example.
All of this will occur in a part of PNG that is relatively undeveloped and in real need of substantial economic stimulus.

Q: What are your views on the global market for Western LNG around 2023 when the first exports are expected?
EMMET: Like many industry players, we see a supply shortfall looming at about that time, as a result of forecast strong growth in demand for LNG going into the next decade and the lack of approvals for investment in new projects over the last few years. Factors such as the massive switching from coal to gas for power generation that we are seeing in China today, the burgeoning increase in living standards in Asia and the move towards fuelling ships with LNG rather than high sulphur fuel oil will underpin this demand growth.

Q: Have you considered alternative development concepts to commercialise the gas resources and why did you settle on Western LNG?
EMMET: Yes. We have considered the alternatives of running our gas into the Western Pipeline Project proposed as an open access pipeline by Kumul Petroleum and also the possibility of exporting the gas and condensate through the pipelines that ExxonMobil has proposed to develop for the P’nyang field.
While these are potentially viable alternatives, we have little certainty as to the commercial terms and timing of access to third-party infrastructure and so Western LNG will remain our base case concept. A particular concern with producing into the PNG LNG system is that Western gas would likely serve as backfill to the extensive PNG LNG gas resources, including P’nyang, thus delaying the impact of Western gas commercialisation, potentially by decades. We think this delay will be unacceptable to the various stakeholders, particularly local communities, landowners and the provincial government.
In our view, Western LNG will deliver a large volume of product – condensate, domestic gas, LNG and LPG – with more certainty and in a shorter timeframe. The infrastructure spine associated with the project – stretching nearly 600km from Kiunga to Daru – will provide, as we discussed earlier, a valuable building block for development. From a government perspective, I would expect that all the construction and ongoing operational activity that comes with a new project in Western will be more attractive than an add-on to an existing project in the possibly distant future.

Q: What are the main priorities for Horizon Oil in 2018 in terms of the development of Western LNG?
EMMET: Having successfully completed the pre-FEED process and received independent certification of the resource base, we are now going through all the steps required to begin the FEED process towards the end of this year. In the near term this includes site investigation work and bathymetric surveying at the proposed location of the liquefaction facility off the coast of Daru Island, production modelling of the various gas fields that will combine to supply Western LNG and finalisation of the basis of design. We will also be ramping up engagement with various government bodies who are tasked with regulating new developments.