Showtime looming fast for LNG

Editorial, Normal

The National, Wednesday July 17th, 2013

 PAPUA New Guineans carry on with their daily lives, quite oblivious to the fact that the country’s single biggest resource project is under construction at present and close to completion.

Unknown to them, this behemoth affects every one of them drastically. 

It is responsible for the high prices of goods and services. 

It is responsible for the value of the kina going up.

It is responsible for flight of public servants from their lowly public service positions to the more lucrative jobs offered by the project.

It is responsible for the hardships faced by the agriculture and the manufacturing sectors as they are forced to bear high costs of imported inputs, lower kina returns for exports and for the flight of labour from these sectors.

Yet, knowledge is very scarce indeed if you ask the common person of the project in our midst which affects us dramatically now and will continue to do so both in good ways and bad into the future.

The Liquefied Natural Gas (LNG) project is Papua New Guinea’s single biggest construction project of all time.

It is also PNG’s first LNG project. At the end of March 2013, the PNG LNG project construction was 80%complete, Esso Highlands reported in its first quarter environment and social report just released. 

A total 20,270 people directly connected with the project have clocked up 130 million work hours.

More than K8.2 billion out of the K36 billion target cost has already been spent.

The largest airport in the country was carved out of bush and jungle at Komo in Hela and it is taking in the largest aircraft on the planet.

More than 700km of pipeline has been laid to connect a conditioning plant at Hides in Hela, to liquefaction and storage facilities located near Port Moresby.

These facilities will produce some 6.9 million tonnes of gas per year. 

The gas well is projected to produce well over 250 billion cubic metres of gas in its lifetime and that is only using the current two-train projection.

All things being equal, the project is on schedule for its first gas delivery towards the end of 2014.

If negotiations currently under way is firmed up, another train might be added in the near future to the two-train project utilising Gulf province’s Elk gas reserves currently being developed by a consortium headed by InterOil Ltd. 

Were that to happen, projected production figures will increase many times again.

This is a world-class project, the largest single project energy giant ExxonMobil has ever undertaken worldwide.

It has required putting together a financing arrangement involving seven credit agencies from countries as diverse as Australia, China, Italy, Japan and the United States and 21 banks from around the globe. 

Each of these financial institutions required the most stringent tests and checks and balances so that it is near impossible to cut corners or fudge figures. 

To have done so would have caused one or more in this financing coalition to pull out of the project,  collapsing the deal on its head.

The US Exim credit agency invested K4 billion and ExxonMobil itself invested K4 billion upfront, making the US the biggest single investor in the project. 

A project of this magnitude requires Congress oversight and that is as rigorous as it ever gets. 

This deal was put together between 2008 and 2009, the years of the global credit crunch, making finance so tight for major global players that the chances of putting a multibillion kina deal together in Papua New Guinea was near impossible. 

To take up equity (19.6%) in the project, the Government had to sell its 17.4% interest in Oil Search, cashing  up the 196.3 million shares it held in the company.

The Independent Public Business Company issued convertible bonds to raise K1.68 billion which still fell short of PNG’s upfront equity contribution requirement (including sunk cost and the shortfall created by the sale of Oil Search shares) which was in the vicinity of US$1.95 billion.

That this has been pulled off is a coup of a magnitude that beggars description. 

As LNG host province Governor Anderson Agiru once said: “PNG LNG is the biggest nation transforming deal ever undertaken in PNG ever before and it will be a long time before it is overtaken.”