Thursday, December 11, 2008

Liquefied Natural Gas project to take Papua New Guinea into the future

By JASON SOM KAUT, who attended last week’s 10th Mining and Petroleum conference in Sydney, Australia

THE Papua New Guinea Liquefied Natural gas project has the potential to underpin the nation’s development aspirations for the next 30-plus years and more.

It is the nation’s largest and most-ambitious development project since independence in 1975 and may well keep this adage for many decades.

Major players in the petroleum industry in the world are targeting PNG’s untapped gas reserves.

 Amongst them is ExxonMobil, which has a reputation to deliver projects within both schedule and budget.

 There is ever-increasing energy demand, particularly for gas, from China and India two of the fastest-growing developing nations in the region.

It was recently reported by the December 2008 issue of the international magazine Petroleum, considered to be the voice of the industry, that Petronet LNG - a consortium of Indian firms – has been actively seeking LNG and other gas assets around the world.

The magazine said, according to Indian press reports, Petronet was not only in negotiations with operators in PNG but was also considering a 5 million tonne per annum liquefaction facility of its own in PNG in order to secure gas exports to India.

Deputy Prime Minister Dr Puka Temu extended Prime Minister Sir Michael Somare’s invitation for interested investors to visit PNG while concluding the Grand Chief’s opening remarks during the Sydney conference, while Exxon Mobil revealed plans to bring over a whole bunch of investors on a tour to PNG early 2009.

The final day of the Sydney conference saw revelations of PNG getting a poor rating from the World Bank and others.

But yet, many others including internationally-recognised Societe General, international investors and bankers gave PNG a ‘thumbs-up’ as a conducive investment environment amidst a global financial crisis that has seen many developed nations enter into recession.

That is the extent of the world’s interest in the nation’s vast gas reserves and the PNG LNG project, which some consider to be one of the few bright lights in current dark times.

Rumors are that members of OPEC, world regulators of the global oil price, will be a part of the contingent expected to visit PNG soon.

The PNG LNG Project will triple economic growth through employment and wealth creation and substantially improve the living standards of the more than 80% rural majority.

 It will have a rippling effect on nearly all other sectors of the economy.

According to Paul Bafle, executive director of ACIL Tasman of Australia who presented an economic analysis of the pros and cons of the Project, PNG LNG project provided a great opportunity for economic and social improvement in PNG, but also posed great challenges for prudential government.

 “Large resource projects generate large cash flows, but don’t always bring wealth and economic prosperity to the host countries,” he said.

Mr Bafle stressed the need for proper planning and for measures to be put in place before the resource revenue started flowing in.

Oil Search managing director Peter Botten stressed on the necessity of involving landowners in the project at the earliest possible stage.

This, he added was one of the ingredients for success in the mining and petroleum industry in PNG.

Greg Anderson, executive director of the PNG Chamber of Mines and Petroleum which organised the biennial conference, highlighted the need to maintain relationships and market the nation’s potential.

 Much was said during the conference on the many positive structural changes in legal and governance issues in PNG.

But there are downsides to the project, according to Mr Bafle.

That is, if not planned properly, the effects could be devastating and see PNG step back 10 years in development and miss a golden opportunity to find its place among the leading nations of the world.

The 10th PNG Mining and Petroleum Investment conference in Sydney,  Australia,  last week stressed the need for “prudent planning” amid a global financial crisis, which has seen most developed nations go into recession as world demand for energy and other necessities reach levels similar to the great depression.

PNG’s aspirations to commercialise its vast gas reserves are not new.

Past and present governments and numerous ministers in charge of the Petroleum and Energy department, notable among them Sir Moi Avei, attempted to commercialise gas over a decade ago.But now that is a thing of the past with the discovery of large condensates of gas reserves, some of which are of a very high standard, proving a technical headache in trying to harness the enormous pressures of the find.

InterOil also recently announced the discovery of massive gas reserves at its Elk/Antelope fields in the Western province and is optimistic that the find has the potential to underpin PNG’s second LNG project.

Leading the proposed project is global player and project operator ExxonMobil whose presence brings confidentiality to the project, encouraging investor confidence.

The recent announcement by the Government that it had secured the money needed to fully finance its 19.4% equity adds without selling down any Government equity nor put pressure on the budget further consolidates the confidence.

This was evident during the Sydney conference which saw a record 800-plus delegates from around the world attend the three-day event.

But while the positives have been highlighted many times, over it’s the negatives that need to be addressed.

Two of the notable ones are to ensure proper processes, procedures and policies are put in place to guide the dispersing of the enormous revenues that will flow in, estimated to be about US$800 million per year.

The other is that mining and petroleum reserves, non-renewable as they are will not last forever.

Leaders need to stop the bickering and the power struggles and start working together for the nation’s benefit.

According to National Planning Minister Paul Tiensten and State-Owned Enterprises Minister Arthur Somare, the revenues would be placed in Trust Accounts and be chiefly used to upgrade infrastructure and provide other essential services in rural areas, including health and education.

A proactive approach needs to be taken now to involve landowners at the earliest stage.

 It is commendable that ExxonMobil announced plans to develop the technical expertise of Papua New Guineans to supply labor to the multi-billion kina project.

 Education and training is a priority that must be enhanced as the human resource will last for generations after the non-renewable resources run out.

But the State and ExxonMobil need to clearly spell out to the people and the nation how they will benefit in spin-offs and labor supply and to what extent those benefit will curtail.

As it was stressed during the conference in Sydney, prudent planning is vital to the smooth progression and success of the PNG LNG Project for everyone’s benefit.



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