High hopes for new LNG plant
PNG’s second Liquid Natural Gas project may begin early next year.
Discovered in 2006, the field is quaintly called Elk-Antelope. Located in the Gulf Province, it has a number of advantages over the first PNG LNG plant, which began production ahead of schedule last May.
The ExxonMobil-led LNG plant is located in the PNG Highlands, requiring the gas be piped more than 700 kilometres to a processing plant near the capital, Port Moresby.
Those advantages are why Dr Michael Hession, managing director of InterOil, which discovered the field, is confident the project will go ahead.
“It is closer to infrastructure than any other developed gas field in the country and it is close to a major river, an important cost benefit when transporting people and equipment.
“It also has the natural advantage of being in a less-mountainous region than other major gas fields, a big factor in development cost.
“But more importantly, it is a single gas field that can be developed without the expense of pipelines and processing facilities to collect gas from multiple fields,” he says.
InterOil estimates the PGK 50 billion ($US20 billion) project — should it go ahead — will take at least five years to build, with construction due to start within 14 months and the first LNG export due in late 2020 or early 2021.
The lead operator in the project is France’s Total S.A., a “major” in the industry.
“This project cannot exist if you don’t have a major oil and gas company involved,” says Total’s managing director in PNG, Philippe Blanchard.
“Total is one of the major companies. We are experienced in LNG. We are present in the whole value-added chain of LNG projects, from upstream assets to building LNG trains and trading LNG products.”
The working interests in the venture, once the PNG Government and landowners take up their 22.5 per cent shareholding as expected, will see Total owning 31.1 per cent of the shares, InterOil 27.5 per cent, Oil Search 17.7 per cent, and other small investors 1.2 per cent.
Recent drilling at the site has boosted hopes it will be big enough to build the country’s second LNG plant, with InterOil reporting one of its wells has struck gas about 230 metres closer to the surface than expected, indicating that extracting gas could be cheaper than expected.
Citigroup analyst, Dale Koenders, also says the field could be bigger than anticipated.
He says this latest drilling result supports InterOil’s base case of between five and seven trillion cubic feet (tcf) of gas. ( The first PNG LNG field will produce nine tcf over its 30-year life.)
Hession says Elk-Antelope “will support at least a two-train project”, and while InterOil and Total favour developing their own infrastructure independent of ExxonMobil, one of his partners has a different view.
Peter Botten, Oil Search’s managing director, says the Elk-Antelope project should make use of the existing infrastructure created for the PNG LNG project, perhaps contributing to additional trains at the ExxonMobil-run LNG plant in the north-west of Port Moresby.
While it is a view he has held for months, Botten says the recent fall in oil prices supports his case.
He says that unlike other projects in Australia, Canada and the US, the expansion of ExxonMobil’s PNG LNG venture and the Elk-Antelope LNG venture are economical even at prices “materially lower” than current levels.
“The oil price drives a certain urgency to work together and ensure we are not building things that duplicate activities,” Botten says.
Recent drilling at the site has boosted hopes it will be big enough to build the country’s second LNG plant, with InterOil reporting one of its wells has struck gas about 230 metres closer to the surface
than expected.
Hession doubts the fall in global oil and gas prices will affect plans to develop the ElkAntelope fields.
“We don’t expect near-term production revenue to be affected by falling oil prices and LNG production from Elk-Antelope is scheduled for early the next decade, by which time most analysts believe the oil price would have recovered.”
Expectations of rising energy demand are underscored by a recent edition of ExxonMobil’s Outlook for Energy, which suggests that global demand for energy is expected to rise by 35 per cent from 2010 to 2040, or by an average of 1.4 per cent a year.
Natural gas will be the fastest-growing major fuel source by then, the manager of the energy and economics division in ExxonMobil’s corporate strategic planning department, Rob Gardner, told a briefing in Port Moresby.
Demand will increase by about 65 per cent, half due to demand from Asia, led by China.
“By 2040, natural gas is expected to account for more than a quarter of global energy use, surpassing coal in the overall mix,” Gardner’s report says.
The final word to Hession: “Elk-Antelope sits on the doorstep of Asia, the world’s largest LNG market, and we are poised to take advantage of our proximity to markets.