Lost in transitions
O’Neill’s K37 billion debt legacy

LNG negotiations hit wall

Png energy productionPRIYANKA CHOUDHARY
| Rystad Energy | Edited

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.

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Arthur Williams

Yes David but for the benefit of PNG citizens not the overseas companies. It is time the government dug its heels in and said, 'This is our minimum requirements for any future projects.

There are some better government/private joint ventures worldwide that could be adopted for PNG if only the state teams combined to get the best deal for the nation and no elite be it a poli or public servant tried to get paid what us occidentals call a bribe or more politely sounding 'cumshaw' I think the orientals call it.

Never forget working for a company importing apples when the government tried to slowdown their import with firms needing a licence for every shipment. Our accountant / owner had to pay someone to get him to sign our application after being very politely told “I'm gin Customs just to lad I was able to help you Mr. X. I wonder can you help with my son's school fees?”

Perhaps I'm being naïve as it may just be human greed exacerbated by poor governance in PNG or is it the economic model we call Crony Capitalism or Neocon Liberalism or suchlike catch phrase.

Yet if we know of the sickness then all the more reason for these hand-out by companies to be rejected and every project carefully examined for transparency and full discussion before signing.

Even genuine well known house names are not worried about a 'bit behind the hand' Rolls Royce the once favoured vehicle of majesties, presidents, tongs, mafia and other spivs was not aggrieved by such activities. Read the 2019 Mar 22 article at www.theglobeandmail.com/opinion/article-bribery-is-just-the-cost-of-doing-business

Its author is David Montero who has written 'Kickback: Exposing the Global Corporate Bribery Network' He starts this post by saying: “[Bribes] are like steroids – everyone’s doing it. And if you don’t do it, you fall behind.” In the five years I spent researching commercial bribery on four continents, that was a statement – from an American oil consultant who worked in Iraq.

He went on: 'What is also striking is that Rolls-Royce is certainly not alone. Today, nearly one-third of all global businesses use bribes to win government contracts, according to studies by the World Bank. Like Rolls-Royce, many are otherwise the most innovative companies in the world, prized for their research, their technology and the unrivalled quality of their products – companies such as Pfizer, Hewlett-Packard and Panasonic, all of which have settled bribery investigations by paying large fines to U.S. Regulators.'

The late Samson Gila a provincial member and very strong SDA man told me of finding a prostitute in his hotel room while on official government business in Malaysia. She told him she was sent by the company with which his delegation was working. He got rid of her at once and later told the company of his dislike of such corporate action.

Another Christian, my boss in Pasuwe Ltd, also rejected illegal and immoral activity when one of our exporters in Hong Kong initially sent us in our mail lower value dummy invoices to let us pay cheaper custom & wharf clearance fees while the larger accurate invoice came later after we had got the goods off the wharf. I must be skeptical but has that really stopped in today's commercial world?

I've recently read the Dec 2018 report by Swiss company SGS PNG, which for 26 years has been entrusted with monitoring the day to day export of logs. They have provided a very detailed compendium of 170 pages of data; enough to baffle the average brains. It's definitely not a ten-minute read.

One fact I found was that 90% of logs are exported to China from the 2018 PNG total of 4 million cubic metres; followed by Vietnam 3%, India & Japan getting around 2% each.

In the bad old days of the Barnett Inquiry into corruption in the forest industry the Judge found a simple very lucrative deception by loggers of Transfer Pricing that result in lower payments not only to landowners but to the state in and handling and other fees.

Using their tricky scheme logs were sold during their voyage to other buyers possibly at prearranged and far better prices than the FOB used by the exporting logger on the beach in PNG.

It is wonderful to know that such nasty practices have so magically ended and that China really did import 90% of PNG logs in 2018. Perhaps I'm guilty of not being sufficiently naïve as to believe that charade.

I may have missed something in SGS report but couldn't find any evidence that the logs did arrive at the stated destination on the original export documentation. Surely the logging brethren didn't just reform their lifelong corporate bad habits.

I must be a horrible man because I wonder too why one of our largest loggers allegedly needs account (or is it accounts) in a Caribbean tax haven(s).

'Honi soit qui mal y pense' or is that always true.

Ian Ritchie

David, I think Oil Search was hit with a triple whammy!

The two whammies you mentioned plus the Saudi/Russian oil war. As much as some suggest Corona is to blame for the oil war, I suspect it has far more to with the entry of a perfect scapegoat for greed and market manipulation.

As I've said previously, I genuinely hope oil, coal and gas usage becomes extinct in the near future.

Making such a comment even just a year ago would have seemed absurd, but with the public alarm and outrage at what is most likely genuine effects of man-induced climate change, I foresee a growing public backlash resulting in a dramatic surge in clean, renewable energy.

Still of a concern of course, is the bevy of politicians of all persuasions that deliberately ignore the science and the best advice of their own professional advisers, to kowtow to big energy companies money, whilst dangerously gambling with the health of the only planet on which we currently have to live.

Those of us who can remember the '80's, will likely remember the hole in the ozone layer. What a success story that is turning out to be. One hundred and eighty nations signed the Montreal Protocol, on the best advice from the scientists. The most recent United Nations four yearly report monitoring the affect of the remedial actions (most significantly, banning CFC's) has suggested the ozone layer is healing at between 1-3% per year since the year 2000 and will likely be fully repaired (including the polar caps) by 2060.

That report https://news.un.org/en/story/2018/11/1024842 is being "hailed as a shining example of what global agreements can achieve" and "an inspiration for more ambitious climate action to halt a catastrophic rise in world temperatures".

It continues to say "the findings provide a ray of hope, less than a month after the IPCC, or Intergovernmental Panel on Climate Change (IPCC), released a watershed report which described the devastating effects of a 2°C temperature rise compared to pre-industrial levels, described by UN chief António Guterres as an "ear-splitting wake-up call."

Humankind does have the ability to identify and fix the problems we create, however I am really worried that somewhat differently from the mid 80's, politicians and many self-proclaimed media shock-jocks are arrogantly ignoring the science, the scientists and the evidence in a race to discard wise and prudent decision making.

Perhaps PM Marape, although probably unintentionally, may end up being the shining light of world political stages if PNG don't end up extracting more gas.

Arthur, gas demand will certainly increase in the near future. For how long that continues is anyone's guess but I firmly believe there will be a slow but deliberate and sustainable backlash against all fossil fuels into the future.

A fossil fuel company will certainly attempt to talk up the future of their business (they have to), but new and cheaper and more desirable alternative energies are entering the market all the time now.

We'll have to sit and watch which direction the fickle market heads, but for me, I'll choose clean renewable energy any day of the week over polluting, carcinogenic dinopoop.

David Kitchnoge

Hi Arthur, I think you'll find that poor ol' Oil Search has copped a double whammy. Uncertainty around Papua LNG + Covid19 have combined to deliver them their worst nightmare.

Oil Search aside, the downing of tools for our LNG projects plus the Wafi-Golpu prospect near Wau is a major concern for the PNG economy.

If we lose the specialist construction expertise and equipment to other projects elsewhere, then we won't have these projects for a long while yet.

Any further delays will mean PNG progressively moving down in the pecking order in the many different aspects of projects of this nature.

PNG economy needs activity to keep the wheels spinning and I don't see any major private sector driver of activity on a meaningful scale in the near term.

The current government's focus on agriculture and SMEs is fine but these are for the future. We've got to be making money from somewhere today to make the investments in these sectors.

Arthur Williams

I still have my Brisbane broker's receipt for selling 1,100 Oil Search shares at 110 cents in 1987.

Bought them when i was working in Tari 1985 at about 10 or 20 cents I think. Oil Search exploration choppers were daily taking off from Tari airstrip with heavy loads flying oh so low over my home in the old Pasuwe Ltd store.

This was then owned by Kopiago's MP, later murdered in Gordons, Aruru Matiabe and a pastor "for the people of Inu Morobi or Last Place".

William Dunlop

David Kitchnoge - Well, we'll have a good look at Oil Search's price on the ASX today, Crashed one-third to $3.15 cents.

Peter Botton, if he sold out last week, should be all smiles. If not he's done $17-18 million based on his shareholding.

Myself, after the blind leading the blind scenario, was left with no option but to get right out of Oil Search.

I had pegged last year that if handled wisely, Oil Search could achieve as much as $10+ a share this year.

I have been investing in Oil Search since 1973.

Now the blame game starts.

Small boys meddling with the big boys, aye. Now we have the start of the end.

Arthur Williams

An interesting take on the current PNG Govt and its people v BIG OIL. It was ever thus since the ‘7-Sisters’ got their cartel in the 1920s. Mostly the Oilygarchs have been very pleased with their winning a very tight economic strangle-hold on the world’s energy markets ever since. That is if you can call the situation in their oil rich middle-east playground a win for lack of peace and wellbeing now and sadly in the foreseeable future.

However there is no need for PNG to surrender their God-given valuable resource for quick bucks. The wealth can be tapped later than Rystad suggestion that we must do it quickly. After all their advice is for would be investors not the citizens of PNG or any other nation.

Below are a five prophesies from other players in the Oil/LNG business. Note that unlike the first 4 reports the last, which quotes a Rystad forecast is post the onset of CoronaVirus. Yet it too stresses that there will be a recovery from the virus after June this year which hopefully is true and so the earlier forecasts though delayed will gradually become more relevant post the pandemic.


190901 Global gas and LNG outlook to 2035 https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-gas-and-lng-outlook-to-2035
September 2019 | Report
Expansion in the gas and LNG markets continues, with LNG demand expected to increase 3.6 percent per year to 2035…………..
Demand growth by the middle of next decade should balance the excess LNG capacity in the current market and planned capacity additions. We expect that further capacity growth of around 250 billion cubic meters will be necessary to meet demand to 2035.

SHELL LNG OUTLOOK 2020
https://www.shell.com/energy-and-innovation/natural-gas/liquefied-natural-gas-lng/lng-outlook-2020.html
Global demand for liquefied natural gas (LNG) grew by 12.5% to 359 million tonnes in 2019, according to Shell’s latest annual LNG Outlook – a significant increase that bolsters LNG’s growing role in the transition to a lower-carbon energy system

EXXON MOBIL 2019 Report
https://corporate.exxonmobil.com/-/media/Global/Files/outlook-for-energy/2019-Outlook-for-Energy_v4.pdf
Oil and natural gas remain important energy sources and require significant investment Oil and natural gas make up about 55 percent of global energy use today. By 2040, 10 of the 13 assessed 2oC scenarios project that oil and gas will continue to supply more than 50 percent of global energy. Investment in oil and natural gas is required to replace natural decline from existing production and to meet future demand under all assessed 2oC scenarios.

2019/12/11 Rystad Energy: Big E&P spending still needed
Massive investments in exploration and sanctioning are still needed to meet growing global demand, according to Rystad Energy. However, projects that need oil prices above $60/bbl in order to break even risk being uncommercial going forward.
OGJ editors
extract...
As the world transitions to a less carbon-intensive future, Rystad Energy forecasts that the global inventory of already discovered oil fields with a breakeven oil price of below $60 Brent (real) is sufficient to meet demand growth and offset declines from maturing fields until around 2027.
From that point on, however, additional volumes from not-yet-discovered fields will be needed in order to meet total liquids demand.

2020/02/12 Rystad Slashes Oil Demand Growth Forecast
by   Andreas Exarheas - Rigzone Staff
https://www.rigzone.com/news/rystad_slashes_oil_demand_growth_forecast-12-feb-2020-161070-article
|Rystad Energy slashes its global oil demand growth forecast for 2020 by 25 percent after assessing the impact of the coronavirus.
Rystad Energy revealed Tuesday that it has slashed its global oil demand growth forecast for 2020 by 25 percent after assessing the impact of the coronavirus.
The company now sees demand growing by 820,000 barrels per day (bpd) this year, compared to its previous forecast of 1.1. million bpd, which was published in December before the virus outbreak.
Rystad has warned, however, that the virus’ impact on demand could be even bigger and revealed that its worst-case scenario sees growth plunging to 650,000 bpd year on year.
“Our current assessment implies that the impact of coronavirus will persist throughout all of February and March and will then gradually subside towards June 2020,” Bjornar Tonhaugen, Rystad Energy’s senior vice president and head of oil markets, said in a company statement.

Ian Ritchie

Well considered reply David. I was mildly amused that this news topic landed just before Minister Ling-Stuckey's debt legacy post.

Although PNG deserves a fair slice of extraction industries revenue, the operative word is "fair".

Playing a game of chicken with very experienced and very deep pocketed multi-national corporations is, in my humble opinion, unwise.

Big multinationals can afford to wait or even move on to greener pastures, whereas PNG are in a debt trap and cannot afford to lose money on an overly optimistic pipe dream.

There are many new greenfield developments worldwide. PNG is not a monopoly and a player has to be careful when they decide to play the bluff game.

Furthermore, a saturated gas market means prices go in one direction, down. This is compounded by an edgy world population, looking to advance non-fossil energy sources.

PNG may find the delay-induced losses are unrecoverable in the long term and you can guarantee Exxon Mobil is weighing that consideration as well.

David Kitchnoge

PNG government has decided to delay the projects after considering all issues.

For better or for worse, we are stuck with that decision and we trust our leaders to handle our economy as they see fit. We are a democracy and we deserve our government.

Time is the best judge. But my intuition says 'brace yourself'.

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