LONDON - The tiny, impoverished nation of Papua New Guinea came out on the short end of a $19 billion development with Exxon Mobil Corp 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.
By most accounts, the liquefied natural gas business that Exxon and partners built from scratch is an engineering and commercial success.
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 PNG’s economy -- declared the Pacific island a key building block for its future growth and plans to double output.
Trouble is, the original deal reached a decade ago has failed to deliver the windfall to Papua New Guinea that the government and an Exxon-commissioned 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 PNG 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 coordinating 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 known as the Highlands, and sends it 700 kilometers 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 onto 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 as much as $3.9 billion 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 $13 billion 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 4,500 kilometers across the sea from PNG, which is located on an island just north of Queensland.
With global consumption booming, analysts see a shortage of LNG coming in the early part of next decade, right when an expansion project would come online if work were to start soon.
Prospects are so promising that Exxon’s chief executive officer Darren Woods said as recently as March that he is counting on PNG and several other countries to help reverse declining output at the company, one of the world’s largest energy suppliers.