In Land of World’s Cheapest LNG, Exxon and Total May Team Up

  • Papua New Guinea PM says country must keep LNG costs down
  • PNG will hold talks with Exxon Mobil on potential cooperation

Peter O'Neill

Photographer: David Moir/Bloomberg

In a country that offers explorers some of the cheapest liquefied natural gas in the world, producers are still looking for ways to reduce costs.

The Total SA-led Papua LNG project in Papua New Guinea may export gas via Exxon Mobil Corp.’s existing PNG LNG facility to avoid the expense of building a new plant, Prime Minister Peter O’Neill said. While the cost of developing the country’s natural gas resources are about half those of neighboring Australia, building a multi-billion dollar unit to export the fuel may not be viable in an era of low oil prices, he said in an interview in Sydney on Wednesday.

“We need to continue to maintain a competitive edge in our country by maintaining cost levels that will ensure the project gets off the ground,” O’Neill said. “If there are areas where we can save costs including sharing the infrastructure there already in the current LNG project, we are quite happy to go along with that.”

A global supply glut has pushed prices down by more than 60 percent in the past three years, raising questions over how quickly a next wave of LNG supplies will be developed. Buyers have shied away from signing long-term agreements that have historically helped fund new projects, which can take six or seven years to develop.

The world will need an estimated 175 million metric tons of additional LNG annually by 2030 even after including all the plants that are under construction or have been approved for investment, Richard Guerrant, a vice president with the Exxon’s gas, power and marketing arm, said Tuesday. That would be more than two-thirds of all the LNG produced globally last year.

LNG consumption in countries like Jordan and Pakistan is growing faster than traditional big Asian consumers, Maarten Wetselaar, director of integrated gas at Royal Dutch Shell Plc said in November. Pakistan LNG Ltd.’s Chief Operating Officer M. Adnan Gilani said the state-owned company issued the largest tender on record last month when it announced it was seeking bids for 60 cargoes over five years and separately 180 cargoes over 15 years.

The PNG LNG project, operated by Exxon, began production in 2014 from a two-train production unit with a capacity of 6.9 million tons of LNG per year. Exxon is also set to become a major shareholder in the Total-run group planning Papua LNG, the country’s next major gas venture, due to its impending takeover of InterOil Corp.

LNG in PNG, including development, operational and shipping costs is the world’s cheapest and less expensive than in the U.S., Sanford C. Bernstein & Co. analysts including Neil Beveridge said in Sept. 7 note.

Total, which operates the Papua LNG venture, hasn’t ruled out a separate greenfield LNG development and needs to explore the economics of supplying gas to an expansion of Exxon’s PNG LNG plant, the company’s PNG Managing Director Philippe Blanchard said Monday.

Realistic Outlook

Evgeniya Mazalova, a Total spokeswoman in Paris, referred Bloomberg to Blanchard’s comments and declined to comment further. An Exxon spokeswoman for PNG didn’t immediately respond to a phone call.

O’Neill said it was vital the Papua LNG project gets off the ground but the government needs to be realistic about the best method of commercializing its gas resources. It hopes to take discussions forward with companies including Exxon and Total in early 2017.

“I understand there is good demand for our gas because it is much cleaner than many of the others on the market,” he said. “I do not see a problem in which we will be shut out of the market. In Japan cleaner gas is much preferred to what is being sold by some of our competitors.”

The PNG government confirmed it will hold talks with resource owners including PNG LNG about diverting some gas supplies to the domestic market, while also tweaking the fiscal terms covering future expansions.

A sovereign wealth fund is also likely to be introduced in 2017 from energy and mining revenues although O’Neill declined to specify any targets.

— With assistance by Dan Murtaugh

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