PNG wants a better Exxon deal
Papua New Guinea has come out on the short end of a $19 billion development with Exxon Mobil to build one of Asia-Pacific’s biggest energy projects.
But as the company pushes to expand the venture, the Government is vowing that round two may require a much bigger payday for the locals.
The PNG LNG venture, which started operating in 2014, is delivering more fuel than expected to Asian economic giants Japan and China. It’s so promising that the US company — with annual revenue 10 times larger than Papua New Guinea’s economy — declared the Pacific island a key building block for its future growth and plans to double output.
But the original deal, reached a decade ago, has failed to deliver the windfall to Papua New Guinea that the Government and an Exxoncommissioned study predicted. An International Monetary Fund analysis showed “quite limited benefits” for the country, which granted Exxon generous rights to recover certain costs before paying taxes or fees. While the initial investment was welcome, the Government has formed a new team to negotiate better terms before it approves the proposed expansion.
“There is a general view that Papua New Guinea gave away too much for the first LNG project,” said Peter Koim, a member of the negotiating team who is also director of the country’s Gas Project Co-ordinating Office. For the next round “the country will not give away concessions as was the case in the PNG LNG project,” he said.
PNG LNG produces gas from wells in the forested mountains and sends it 700km southeast via pipeline to a processing plant on the shores of Caution Bay, near the capital, Port Moresby. The gas is super-chilled to liquid form and loaded on to special tankers for shipment overseas. Originally designed to process a maximum of 6.9 million metric tons a year, the plant produced more than 8.2 million in 2017.
Exxon last year spent $3.9b buying access to additional reserves and drilling rights in the country and is working with partners including Australia’s Oil Search Ltd. and France’s Total SA on a separate $13b venture known as Papua LNG.
The development would add 8 million tons of additional annual processing capacity at the existing PNG LNG plant, but tap gas deposits in a different part of the country and require a new pipeline.
The country will negotiate separately with Exxon and Total on the different projects that will contribute to an overall expected rise in the nation’s gas exports, Koim said.
Demand for the gas has been strong. Long-term supply contracts were signed with buyers including chemical makers and utilities that are as much as 4500km across the sea from Papua New Guinea, which is located on an island just north of Queensland, Australia.
Prospects are so promising that Exxon’s Chief Executive Officer Darren Woods said in March that he is counting on Papua New Guinea and several other countries to help reverse declining output at the company, one of the world’s largest energy suppliers.