Opportunities are calling

 Gas development in Papua New Guinea could take several export or domestic focused directions. 

Expansion   of   PNG   LNG   would   benefit   from   being   able   to   utilise   existing infrastructure.

Greenfield development at the Gulf Hub could enable aggregation of gas from several permits.

Supply of gas to the domestic market could leverage a strong location advantage. 

Brownfield LNG development is likely to be the most economically attractive to project  developers due to cost reductions from infrastructure sharing, but greenfield and domestic options are probably more politically attractive.

With regard to greenfield dev­elopment,the PNG Government may be attracted by the risk diversification associated with a second LNG project rather than a larger single project through expansion of PNG LNG. 

Similarly, having two world-class LNG operators would enhance PNG’s international reputation.

Domestic developments are likely to be attractive to the Government.  

While LNG developments enable a larger scale, most of the economic benefit that accrues is in the form of increased government revenue rather than regional and national development. 

The minimal amount of taxation revenue derived from the PNG LNG project has been a disappointment that certain government agencies may not want to repeat. 

By contrast, development focused on delivering electricity and gas to domestic users or utilisation of gas for applications like fertiliser production has greater political appeal.  

Not only does it provide value adding,environmental and efficiency “dividends,” it  offers  significant  employment opportunities to the broader PNG economy rather than the localised benefits that occurred with PNG LNG and other resource developments.

Fertiliser production could generate significant benefit to a country that is heavily dependent on subsistence farming and small-scale agriculture.

With regard to power generation, PNG has one of the lowest rates of electricity availability in the world. 

Only 8 per cent of the population has access to a power grid. 

This compares with indicative le­vels of Cambodia 30 per cent, Myanmar 50 per cent, and Indonesia 70 per cent. 

Where electricity is available in PNG, it is among the highest priced globally.

Industry is constrained by supply limitations, blackouts and the lack of electricity is a major constraint  on economic growth and social development for PNG’s population of 7.4 million, making electrification an obvious target for the Government. 

Countering this, vwhile PNG’s population is growing rapidly, a “roll-out” of  electricity  is  likely  to  be  constrained  by  PNG’s low  GDP  per  capita  and low urbanisation. 

While PNG has one of the fastest growing economies and population globally, 30 per cent of the population still lives below the international poverty line of US$1.25/day (K3.36).

Most people in PNG still live on subsistence-based agriculture and only 18 per cent of the population lives in an urban area.

Despite this, opportunities exist for localised development. 

In early 2015, ExxonMobil  and  the  PNG  Government  announced  an  agreement  to  supply  20 mmcf/d of gas for 20 years. 

The PNG LNG project will supply up to 25 MW of electricity, approximately 20 per cent of the current Port Moresby capacity, for local use as a substitute for diesel generation. 

Since July 2015 some of this gas has been used to provide power to Port Moresby. 

The remainder of the gas will be reserved for the new state-owned gas-fired power generation unit to be built near the PNG LNG plant.

There are development opportunities in the Highlands region and north to Madang and Lae. 

In this region, three million people live within a 20km corridor of potential gas or power infrastructure.   

There are several mining operations in the Mt Hagen region that are using imported diesel or fuel oil for power generation.

In Western Province, gas from the Stanley/Elevala/Tingu development could be supplied to towns in the Kunga, Ok Menga, and Frieda River regions, plus the Ok Tedi and Frieda River mines. 

Alternatively, gas could be piped to markets nearby in West Papua.

A limiting factor in each of these developments is market size.   

Total installed electricity capacity in PNG is probably 600-700 MW (including privately-operated plants at mining operations). 

There is no national grid. Any additional power generation capacity is likely to be small and serve discrete locations. A 100 MW gas plant would be considered large in these regions. 

Indicative gas consumption for a 100 MW plant is 15-20 mmcf/d (depending on gas quality). 

It is therefore apparent that if significant scale development is to occur,  LNG  or  a  large  gas-intensive industry like fertiliser or pet­rochem­icals will be required. 

By comparison, a 3 mmtpa LNG train would consume approximately 400 mmcf/d of gas.

 Conclusions

• PNG is well-resourced to host   additional LNG development – either brownfield by PNG LNG, greenfield, or synergistically due to the Total-led Papua LNG project being adjacent to ExxonMobil’s PNG LNG project.   

Oil Search is the only independent company in both developments.  

A limiting factor is that PNG is a geographically challenging location to undertake drilling and construct pipelines, but the current PNG LNG plant site has capacity for several trains and the successful commissioning of the ExxonMobil project demonstrates that these issues are manageable;

• PNG hydrocarbon resources are    characterised by small/mid-sized re­sources. 

This probably necessitates a higher level of aggregation and cooperation than elsewhere. 

Common involvement of several companies is likely to support cooperation. Consolidation via acquisition could further support this;

• relative to “competing” with LNG pro­jects East of Suez, PNG is advantaged by being “wet gas” prone. 

Revenue from associated condensate positively impacts project economics.  

PNG’s reservoirs are understood to have high deliverability and low sustaining capex requirements, and,

•  Strong government support for resource development is conducive.

Not only does PNG have an appropriate resource taxation regime,  the Government has a “pro-development” attitude.  

While the decline in oil prices has resulted in a less than anticipated boost to government revenue from the PNG LNG project, this is unlikely to result in reduced enthusiasm for further development. 

Investment that generates greater domestic benefit (ie. power generation, fertiliser, petrochemical, etc) will have appeal to the PNG Government. 

However, these projects are likely to be smaller users of gas.  

A development needs to be attractive to both investors and the Government. 

While there may be resources that due to their location or scale are suited to be wholly or partially focused on non-LNG development, these are likely to be the exceptions. 

For investors, big is usually better. 

For government, big is usually better and so expanding PNG’s LNG industry is likely to remain the Government’s priority as it seeks to stimulate the country’s economy through construction activities in the 2017-2022 timeframe.

• PNG will have 4-5 LNG trains by 2022 and perhaps 6-7 trains by 2030. – www.fgenergy.com