No major delays are expected for an expansion of the PNG LNG project in Papua New Guinea after the country's leadership change this week, said CEO and Managing Director Kevin Gallagher of project partner Santos Ltd.
Some observers had suggested that ongoing political turmoil could impact the expansion of the PNG LNG expansion project, with analysts saying a final investment decision, or FID, could be pushed back by several months.
"I think we've just got to wait and see how that will settle down and let the process take its course," Gallagher told reporters May 30 on the sidelines of the Australian Petroleum Production and Exploration Association 2019 conference in Brisbane.
The CEO noted that the main source of disputes connected to the PNG LNG project was around fiscal terms and not political issues. "I don't hear anybody talking about stopping or slowing down new developments."
"There's always a concern that [the prime minister's resignation] could lead to a delay. But I wouldn't anticipate at this stage that there should be any major delay," Gallagher said, adding that resource development is still very important for Papua New Guinea.
Santos has a 13.5% interest in PNG LNG Inc. Oil Search Ltd. has a 29% stake, Exxon Mobil Corp. has 33.2%, JX Nippon Oil & Gas Exploration Corp. holds 4.7%, Papua New Guinea's Kumul Petroleum Holdings Ltd. has 16.8%, and state-owned Mineral Resources Development has 2.8%.
The PNG LNG project has a current nameplate capacity of 6.9 million tonnes per year and is expected to add three more trains with a capacity of 8.1 million tonnes per year in the next wave of expansion, expected to take FID by 2020.
Two of the three trains will be supplied as part of the Papua LNG project, with upstream gas from the PRL 15 Elk-Antelope fields developed by Total SA. One train is to be developed as part of PNG LNG and fed by upstream gas from the P'nyang fields, a project led by Exxon.
Total did not respond to queries on PNG LNG. Exxon said it does not comment on political matters.
"We remain committed to our long-term plans for PNG and look forward to working with the new leadership," Exxon said.
James Marape took over as Papua New Guinea's prime minister May 30 after a vote by Parliament, ending a few days of uncertainty that followed the resignation of the previous prime minister, Peter O'Neill, over the weekend.
O'Neill's resignation had the potential to delay the PNG LNG expansion project, although the project is still likely to reach FID in 2020, said Neil Beveridge, senior analyst at Bernstein Research. "A change in government would lead to a change in key personnel responsible for negotiation of the P'nyang Development Agreement."
"This could delay finalization of the P'nyang Development Agreement until later in the year and push front-end engineering and development entry out to [the fourth quarter of 2019]," Beveridge said, referring to the agreement for the PNG LNG train to be developed by Exxon. Despite the political uncertainty, the PNG LNG expansion would be a positive development for the country, and the analyst said he has a strong conviction that the project will move ahead.
The project partners have disagreed over the fiscal terms for the gas supply agreements, with Papua New Guinea requiring a greater margin for the government. Analysts said they expect the PNG LNG expansion to have less favorable terms than the original three trains. Still, the project is competitive with high-cost projects in Australia that have seen costs multiply over the years. The attractiveness of the PNG LNG project outweighs short-term political risks, executives at the LNG conference said.
"Currently, the expansions are estimated to cost $12 billion, including the three trains and upstream development, implying a cost of $1,500 per metric ton, which is the most competitive in the Asian region," Beveridge said, adding that PNG LNG's expansion projects are highly levered to oil prices.
Eric Yep is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.