Exxon Treads Rocky Terrain in Papua New Guinea ..Approval of $15 Billion Gas Project Highlights Demand for New Sources as Energy Demand Rebounds in Asia
SYDNEY—A decision by Exxon Mobil Corp. and several other companies to proceed with a US$15 billion natural-gas project in Papua New Guinea underscores the energy sector's rising tolerance for risk as demand recovers in Asia.
Exxon Mobil said Tuesday it had approved the project, the largest-ever foreign investment in Papua New Guinea, pending finalization of financing and sales agreements to gas buyers. The company said those terms would likely be wrapped up by early next year.
The project has the potential to transform Papua New Guinea, an impoverished South Pacific nation better-known for jungles, violence and corruption, into one of the world's newest significant energy producers. By some estimates the gas shipments, which would likely begin in late 2013 or 2014, would triple the country's export revenue.
The project also would be a vote of confidence in a country with major untapped deposits of minerals, potentially opening the door to further investments.
But experts on Papua New Guinea warn about the dangers. A former Australian colony of six million people, Papua New Guinea is plagued by lawlessness. Roving gangs known as "raskols" have periodically terrorized Port Moresby, the capital, with machetes and other weapons.
The Economist Intelligence Unit in 2005 rated Port Moresby one of the worst cities in the world measured by stability, infrastructure and other indicators, behind Lagos, Nigeria, and Dhaka, Bangladesh. The country also is one of the world's most corrupt according to Transparency International.
Papua New Guinea also has minimal infrastructure outside of Port Moresby and companies typically must negotiate terms with local landowners to gain access to resources—a knotty problem in a country with hundreds of ethnic groups and more than 800 languages. Experts say deals reached with tribal leaders run the risk of unwinding later. The Panguna copper mine on the island of Bougainville was shut down in 1989 after attacks on the mine and its staff amid a wider armed insurrection.
"There are multiple things that could go wrong" with the Exxon project, says Jenny Hayward-Jones, an expert on Papua New Guinea at the Lowy Institute, a Sydney think tank. "The risk of it being like every other mess in PNG is high."
But Exxon Mobil has considerable experience in challenging environments and one of its partners, Australia's Oil Search Ltd., long has had operations in Papua New Guinea. Other partners include Santos Ltd. of Australia, Nippon Oil Corp. and the Papua New Guinea government.
Exxon, with a 33% stake, is likely to contribute in excess of US$5 billion into the project. Oil Search is the next biggest partner, with a 29% stake. The government has nearly a 17% stake.
"I think people recognize there are inherent risks with PNG, but the combination of Exxon Mobil's experience with complicated oil and gas projects and Oil Search's experience on the ground is about as good a combination you can get," says gas analyst Frank Harrisat consulting firm Wood Mackenzie.
Papua New Guinea also stands as one of the few places in Asia, along with Australia, that can promise large new supplies of natural gas when energy demand in the region is rising again. The International Energy Agency forecasts that Asia's natural-gas demand will grow 3.8% a year through 2030. While the U.S. has a surplus of available gas, supplies are still fairly tight in Asia and buyers are scrambling to lock up supply.
In recent days, the Exxon Mobil project wrapped up deals to sell two million tons of gas annually to China Petroleum & Chemical Corp. and 1.8 million tons a year to Tokyo Electric Power Co. Exxon said it expects soon to finalize two more deals to underwrite its full capacity of 6.6 million tons a year.
Exxon Mobil officials agree the project will be challenging. The gas is located in remote areas and must be transported to the coast by a 190-mile, 32-inch pipeline that will traverse rugged terrain up to 650 feet above sea level. From the shore, it will then be transported by a 250-mile subsea pipeline to a gas-processing terminal before being shipped to customers in Asia.
"We're in a rugged and remote area, we're seismically active, the annual rainfall here is some of the highest in the world, and we've got very long supply chains," Decie Autin, a manager for the project, said at a conference earlier this year.
Exxon Mobil spokeswoman Rachael L. Moore said by email that the Papua New Guinea government "is stable and has made significant progress recently in strengthening the legal and institutional systems."
Attempts to reach the government for comment were unsuccessful. In a written statement issued by Exxon Mobil, Prime Minister Michael Somare welcomed the investment and said "cooperation between the public and private sectors will create value for the Papua New Guinea society."
http://online.wsj.com/article/SB20001424052748704825504574583651188...
Exxon Mobil said Tuesday it had approved the project, the largest-ever foreign investment in Papua New Guinea, pending finalization of financing and sales agreements to gas buyers. The company said those terms would likely be wrapped up by early next year.
The project has the potential to transform Papua New Guinea, an impoverished South Pacific nation better-known for jungles, violence and corruption, into one of the world's newest significant energy producers. By some estimates the gas shipments, which would likely begin in late 2013 or 2014, would triple the country's export revenue.
The project also would be a vote of confidence in a country with major untapped deposits of minerals, potentially opening the door to further investments.
But experts on Papua New Guinea warn about the dangers. A former Australian colony of six million people, Papua New Guinea is plagued by lawlessness. Roving gangs known as "raskols" have periodically terrorized Port Moresby, the capital, with machetes and other weapons.
The Economist Intelligence Unit in 2005 rated Port Moresby one of the worst cities in the world measured by stability, infrastructure and other indicators, behind Lagos, Nigeria, and Dhaka, Bangladesh. The country also is one of the world's most corrupt according to Transparency International.
Papua New Guinea also has minimal infrastructure outside of Port Moresby and companies typically must negotiate terms with local landowners to gain access to resources—a knotty problem in a country with hundreds of ethnic groups and more than 800 languages. Experts say deals reached with tribal leaders run the risk of unwinding later. The Panguna copper mine on the island of Bougainville was shut down in 1989 after attacks on the mine and its staff amid a wider armed insurrection.
"There are multiple things that could go wrong" with the Exxon project, says Jenny Hayward-Jones, an expert on Papua New Guinea at the Lowy Institute, a Sydney think tank. "The risk of it being like every other mess in PNG is high."
But Exxon Mobil has considerable experience in challenging environments and one of its partners, Australia's Oil Search Ltd., long has had operations in Papua New Guinea. Other partners include Santos Ltd. of Australia, Nippon Oil Corp. and the Papua New Guinea government.
Exxon, with a 33% stake, is likely to contribute in excess of US$5 billion into the project. Oil Search is the next biggest partner, with a 29% stake. The government has nearly a 17% stake.
"I think people recognize there are inherent risks with PNG, but the combination of Exxon Mobil's experience with complicated oil and gas projects and Oil Search's experience on the ground is about as good a combination you can get," says gas analyst Frank Harrisat consulting firm Wood Mackenzie.
Papua New Guinea also stands as one of the few places in Asia, along with Australia, that can promise large new supplies of natural gas when energy demand in the region is rising again. The International Energy Agency forecasts that Asia's natural-gas demand will grow 3.8% a year through 2030. While the U.S. has a surplus of available gas, supplies are still fairly tight in Asia and buyers are scrambling to lock up supply.
In recent days, the Exxon Mobil project wrapped up deals to sell two million tons of gas annually to China Petroleum & Chemical Corp. and 1.8 million tons a year to Tokyo Electric Power Co. Exxon said it expects soon to finalize two more deals to underwrite its full capacity of 6.6 million tons a year.
Exxon Mobil officials agree the project will be challenging. The gas is located in remote areas and must be transported to the coast by a 190-mile, 32-inch pipeline that will traverse rugged terrain up to 650 feet above sea level. From the shore, it will then be transported by a 250-mile subsea pipeline to a gas-processing terminal before being shipped to customers in Asia.
"We're in a rugged and remote area, we're seismically active, the annual rainfall here is some of the highest in the world, and we've got very long supply chains," Decie Autin, a manager for the project, said at a conference earlier this year.
Exxon Mobil spokeswoman Rachael L. Moore said by email that the Papua New Guinea government "is stable and has made significant progress recently in strengthening the legal and institutional systems."
Attempts to reach the government for comment were unsuccessful. In a written statement issued by Exxon Mobil, Prime Minister Michael Somare welcomed the investment and said "cooperation between the public and private sectors will create value for the Papua New Guinea society."
http://online.wsj.com/article/SB20001424052748704825504574583651188...
Views: 146
Replies to This Discussion
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Permalink Reply by Checkmateking on -
It may take me a few minutes to find, but one gas well in this area IP'ed at 150 million+
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Permalink Reply by j garrett on
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I think they are partners with Interoil, which just announced the biggest well in the World, 382 mmcf per day! I don't know why, but that can't be good for us shalers can it?
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Permalink Reply by Checkmateking on
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It won't hurt us, unless they build a pipeline under the pacific ocean that would be 15,000 feet deep and 10,000 miles long, LOL.
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Permalink Reply by Les Bamburg on
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JG, the ExxonMobil development is separate from the Interoil project. Both are planning LNG export plants but only the ExxonMobil project has reached the financial commitment stage. All the LNG will likely be sold into the Asian market.
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Permalink Reply by John Avatar on
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You notice that Exxon was so concerned about America's natural gas needs, they had to go half way round the world rather than drill in the U.S.
Now the lucky taxpayers get to underwrite the $3Bn project which is the US financing Exxon's facilities to enable them to sell LNG to China. http://www.star-telegram.com/business/story/1810999.html
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Permalink Reply by Checkmateking on
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I would rather a US based company drill in New Guinea and sell gas to China than them competing with us for projects in South America, Saudi Arabia and Africa, China has invested billions lately all over the world. They have the cash to go after resources worldwide. Good for Exxon and it's American and western European stockholders.
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Permalink Reply by Digger1 on
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The $3Bn is a loan or loan gurantees to allow a foreign purchaser to purchase U.S. goods and services, so it benefits the U.S. economy. If it is a direct loan to Exxon, that is great, as there is not much of a risk that they will be unable to repay the loan. It is more likely that Exxon U.S.A. will receive the benefits of the loan made to a foreign entity, which the foreign entity will use to purchase U.S. good and services from Exxon.
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Exxon has $30Bn in cash. Other than to involve the U.S. government in their business, what would be their point.?
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Permalink Reply by Grillin' - MmmMmm on
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What U.S. goods and services will be bought? The LNG plant will be constructed in PNG and will be made up of mostly foreign material. the LNG carriers will be built in Korea, as labor is far cheaper. The natural gas will be produced in PNG, so no U.S. equipment/materials. The only thing U.S. will be some of the personnel involved in the engineering although a good bit of that will be from India, Japan and Korea.
Don't get me wrong, I'm happy to see Exxon building this as I own their stock. Just don't go out and get all crazy and think this project will benefit the U.S.
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Permalink Reply by Pipeliner on
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This is wide spread all over Papua New Guinea-it gets in the way of doing your work. To hire out on a job there you either have to be very hungry or have a "Death Wish".
Tribal Warfare-Papua New Guinea:
http://www.youtube.com/watch?v=hPM-gJA62Rs
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Permalink Reply by Pipeliner on
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Here is an interesting article about a previous pipeline laid in PNG. This is what Exxon faces:
http://pipelinesinternational.com/news/1991_1992_building_the_kutub...
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Permalink Reply by Pipeliner on
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Exxon Executive Stomped in Dispute Over $15 Billion Gas Project'
http://www.bloomberg.com/apps/news?pid=20601072&sid=aWKxtixiDKcg
Just spoke to a Canadian pipeline superintendent I worked with in Chad that just returned to Canada on leave from the EXXON LNG job in PNG.
He said it was so dangerous that to get from the International Airport Terminal to the Domestic Airport Terminal-a 3 minute walk-you were required to take a taxi to keep from being robbed walking.
He said it was like "Dodge City". If the natives weren't shooting each other, they were beating each other with clubs or sticking each other with spears.
He also said the crocs got one of his workers on a river bank the other day-said "the guy just wasn't watching too well".
He said the crocodiles there were real sly. They had learned to slip up on a village and lay on the river bank and bark like dogs. When the village dogs would go to see what was going on, they would get eaten.
I told him if the crocs would learn to sound like a sultry maiden, all his pipe liners would get eaten.
This guy is a hard old boy that worked years in rough countries like Algeria when all the troubles were going on. He said once he came up on bus in the Sahara Desert that had 58 passengers on it with every one's throats slit by the rebels-men, women and children. No one left alive. He traveled everywhere with two mercenaries that carried machine guns.
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