InterOil's Papua New Guinea LNG plan becomes political football

From PLATTS

 

InterOil Corporation's proposed Gulf LNG project appears to have become something of a political football in Papua New Guinea, with Prime Minister Peter O'Neill calling for his energy minister William Duma to "desist from confusing the investment community" about the status of the proposal.

Duma, PNG's minister for petroleum and energy, told Platts Friday that he wanted to "remind" InterOil of his comments of last September, when he said the company's planned Gulf LNG development did not meet its December 2009 project agreement with the government and had been rejected by the National Executive Council, or cabinet.

The project agreement calls for InterOil to deliver a 7.6 million-10.6 million mt/year LNG project based on its Elk and Antelope gas reserves, using internationally recognized technology and operators. Instead, the company was proposing a three-phase development and did not have an internationally reputable partner on board, Duma said.

In a statement issued by the prime minister's media unit late Friday, O'Neill said InterOil's LNG project in PNG's Gulf province would go ahead "when all preconditions set by government and the 2009 project agreement are fully satisfied."

"There is no National Executive Council decision rejecting the Gulf LNG project," O'Neill said. He also reiterated his statement of August 2011 that the government under his watch would "assist InterOil to secure a strategic operating partner, rescope the project agreement to enable phased LNG development, and to locate the project in Gulf province."

O'Neill has also "directed the ministry and Department of Petroleum and Energy to cooperate with InterOil and desist from confusing the investment community and Gulf province government and landowners with media statements about rejection of the project," according to the statement.

Duma earlier told Platts that he had urged US-listed InterOil to talk to Shell about its plans for the LNG project, rather than pursue its proposed phased development with Australia-based minnow Energy World Corporation.

In February 2011, InterOil signed an agreement with EWC for a modular LNG plant to be developed in two phases -- first 2 million mt/year, with a later expansion of 1 million mt/year. The agreement, which was originally conditional on a final investment decision on the project being taken by December 31, 2011, provided for a possible expansion up to 8 million mt/year.

 "I've been encouraging InterOil to talk to Shell, but they are not in negotiations with them," Duma said. "Shell has told [InterOil] that they want to talk [about the Gulf LNG project], so why haven't they been talking to Shell and other [majors]?" he queried.

Shell would be one logical partner for InterOil, as it already has a strategic alliance with PNG's state-owned Petromin, which it signed last August, and is actively pursuing LNG opportunities in PNG. Petromin was formed to hold PNG's assets and maximize indigenous ownership and revenue from the mineral and petroleum sectors.

With production of 18.8 million mt of LNG in 2011, Shell would also fit the government's requirement that InterOil's LNG project be operated by an internationally reputable player.

ExxonMobil is also active in the emerging PNG LNG sector. The US oil and gas giant is currently constructing a $15.7 billion, 6.6 million mt/year LNG plant near Port Moresby, scheduled for startup in 2014.

Duma said InterOil had held preliminary discussions with Korea Gas Corporation about possible participation in the Gulf LNG project, alongside Japan's Mitsui and Japan Petroleum Exploration Company. "But Kogas is not an LNG plant operator, it is an importer of LNG," he added.

Japex signed a cooperation agreement with Petromin in 2010, the same year that Mitsui inked an agreement to develop a $550 million liquids stripping plant with InterOil at the Elk and Antelope fields.

Kogas officials were not immediately available for comment. Mitsui had not responded to Platts inquiries at press time, and Japex declined to comment.

A source familiar with the matter told Platts Friday that Japex and Mitsui had jointly held talks about possibly joining InterOil's project, but it was not immediately clear whether the discussions were still under way.

InterOil at the end of March again extended its deadlines for final investment decisions on the liquids stripping project with Mitsui and the LNG plant with EWC. The projects had at that time been scheduled for FID by March 31, 2012.

Now, the liquids project is due to go to an FID by June 30, 2012, with provision for a possible further extension to December 31, 2012. The decision on the LNG project has also been pushed back to the end of this year.

At the time, the company said it had continued to progress the development of its LNG project by completing front-end engineering and design work for the proposed field gathering system, the liquids stripping project and pipeline to the proposed LNG plant site on the coast. Bids for the liquids stripping project "have been received, evaluated and are in the process of being finalized," the company said.

Under its project agreement, InterOil has until June 2013 to take a final investment decision on the LNG project.

InterOil CEO Phil Mulacek said Friday that the bid process for the LNG project was advancing, with international investment banks Morgan Stanley, Macquarie Capital and UBS pursuing partners.

"The purpose is to secure an LNG partner to accelerate the LNG capacity to 8 million mt/year, with them as lead operator," Mulacek told Platts. "This may involve the new LNG partner buying part of the Elk/Antelope gas assets. This was outlined to the PNG government and was accepted," he added.

"In regards to Shell or other LNG partners, they are all under confidentiality agreements and we cannot talk about the discussions," Mulacek said.