THE InterOil-proposed Gulf LNG project has been dumped by cabinet on grounds that it deviated from the original project agreement, The National reports.
An industry observer warned last night this could be seen as a case of "expropriation" by the government and the state could be hit with a "hefty lawsuit".
He said the project agreement provided for disputes and agreements to go before an arbitration tribunal, but "it appears the government has taken the extreme decision".
InterOil executives were contacted last night for comment but did not respond.
Announcing the cabinet decision, Petroleum Minister William Duma blasted InterOil for moving away from the original agreement and instead proposed a "small scale fragmented" Gulf project to be developed by companies not recognised as LNG operators.
He said none of these companies were experienced in operating a world-class LNG plant that InterOil was contracted to deliver.
"Hence they do not fit the description or intent of a world class operator as contained in the project agreement," Duma said in a statement.
In what appears to be a double-barrel blast at InterOil, Petroleum secretary Rendel Rimua issued a separate statement attacking the company for not complying with requirements of its NapaNapa oil refinery agreement.
Duma said original project agreement executed between the state and Liquid Niugini Gas Ltd (LNGL) in December 2009 was for a "world-class LNG plant of international scale and quality using internationally recognised technology with a plant size of 7.6 million to 10.6 million tonnes of LNG per annum and to be operated by an internationally-recognised LNG operator".
"Instead of delivering a project that fits this project description, LNGL/InterOil has been announcing, presenting and promoting a different project without seeking prior formal state approval," Duma said.
The original InterOil LNG plant was to be built alongside the NapaNapa oil refinery outside Port Moresby, but LNGL/InterOil had over time changed that and proposed a Gulf project using a combination of different production methods.
These included a land-based LNG plant using multiple mini LNG trains to be developed by Energy World Corporation and a fixed floating LNG plant to be developed by Flex and Samsung.
"Clearly this is not the project contemplated by the project agreement and to which the state has dedicated its gas for commercialisation," he said.
Duma said that since May last year, Rimua had on numerous occasions been conveying the state's requirements for LNGL/InterOil to deliver the project contemplated in the agreement.
The minister said the developers ignored these concerns and proceeded to publicly promote a different project in Gulf province.
Therefore, the cabinet decided last Wednesday that the Gulf project was not the kind that was contemplated in the project agreement.
"I have also reminded LNGL and InterOil to comply with their contractual obligations to deliver a world-class project with the support of a world class LNG operator," Duma said.
He said NEC still supported the development of a second LNG project by LNGL/InterOil and reiterated that it must comply with the original project agreement.
"The NEC confirmed that if LNGL and InterOil continue to progress the fragmented Gulf project, they will inevitably reach a point at which LNGL/InterOil will commit a repudiatory breach of the project agreement.
"The PNG government supports and will continue to support LNGL/InterOil in delivering the project contemplated in the agreement but not a project which deviates from the agreement."