OSLO, NORWAY - The decision by the government of Papua New Guinea to halt talks with ExxonMobil about the state’s share of revenues from the planned P’nyang gas field development is set to delay two key liquefied natural gas projects that would double the country’s gas output.
The two projects, Total’s $13-14 billion Papua LNG investment and ExxonMobil’s subsequent PNG LNG Expansion plan, are located close to each other and could save the firms up to $3 billion in shared infrastructure synergies through a combined development.
Using gas from P’nyang, Papua LNG is planned to add two LNG trains and PNG LNG Expansion a third one, each with a capacity of 2.7 million tonnes per annum of LNG.
The projects would double Papua New Guinea’s current gas output, which was 8 million tpa in 2019.
As a result of the deadlock, Rystad Energy estimates that the delays in reaching a financial investment decision and conducting engineering, procurement and construction works will postpone Papua LNG’s first production to 2026 and the PNG LNG expansion to 2029.
This not only leaves bruises on the operators involved, but also has implications for the service companies performing EPC services on the fields.
PNG prime minister James Marape has made it clear that every new development should have more favorable terms for the state than previous projects. The country wants to see a government take of revenues higher than 40% and an obligation to sell up to 15% of the gas in the domestic market.
Rystad Energy believes both projects are going to be delayed for quite some time, with first production expected to be delayed until 2026.
Failure to reach a deal over P’nyang will also have an effect on the timing of the final investment decision for the PNG LNG expansion.
Rystad Energy estimates that around $80 billion worth of LNG projects around the globe are going to be approved over the next few years, adding nearly 110 million tpa of new liquefaction capacity by 2025‒2026.
With a very limited number of service contractors able to handle huge LNG plant contracts, it will be a race between operators to get projects launched on time.