The race for PNG’s gas

Two massive Liquefied Natural Gas (LNG) projects to commercialise the gas resources of PNG’s Southern Highlands and Western provinces have opened the floodgates for an unprecedented economic boom seen in the rash of new hotels, supermarkets and entertainment centres in the capital, Port Moresby.

The US$15bn (Kina 42bn) PNG LNG project  got the okay from project developers Esso Highlands Ltd, a subsidiary of ExxonMobil Corp and partners Oil Search Ltd, Santos Ltd, Nippon Oil, Mineral Resources Development Company (MRDC), and Eda Oil,  in December 2009. Esso Highlands has a 33.2 per cent stake, Oil Search 29 per cent, PNG government’s National Petroleum Company, 16.6 per cent, Santos 13.5 per cent, Nippon Oil 4.7 per cent, MRDC 2.8 per cent and Eda Oil 0.2 per cent.

The LNG will be conveyed through a 450-mile pipeline to liquefaction and storage facilities located 20 kilometres north west of Port Moresby on the Gulf of Papua. According to experts, the project will start shipping supplies of LNG in 2014 to four major customers in Asia: Chinese Petroleum Corporation, Taiwan; Osaka Gas Company Ltd; The Tokyo Electric Company Inc. and Unipec Asia Company Ltd, a subsidiary of the China Petroleum and Chemical Corporation (Sinopec). Over the life of the project, it is estimated that over nine trillion cubic feet of gas will be produced and sold, bringing in PNG Kina $30bn over 30 years and doubling the Gross Domestic Product (GDP) of PNG. 

A myth fulfilled

In this country of legends some of the Southern Highlanders say that the LNG development project fulfils the myth of Gigira Laitebo in which an underground fire is kept alive by inhabitants poking sticks into the earth, their actions eventually “lighting up the world”.

At the end of 2009, a deal was clinched on another major LNG project. The USS6bn (K17bn) Elk/Antelope LNG project was signed between the Government and developer, South Pacific InterOil Ltd (SPI 208) which will also provide the Asian market with clean energy. The first gas shipment from this project is tentatively set for the end of 2013, a year ahead of the ExxonMobil-led PNG LNG scheme, said Henry Aldorf, Chief Executive Officer of its partner Liquid Niugini Gas Ltd (LNGL) at the recent signing of the project’s shareholders’ agreement between LNGL, South Pacific InterOil (SPI 208), Energy World Corporation (EWC) and Gulf Governor, Havila Kavo. A US$4bn land-based LNG plant will be constructed in the Gulf in two phases.

Under the partnership, SPI 208 will develop the Elk Antelope fields whereas LNGL will construct the pipelines and work with EWC on the construction of the LNG plant off the coast of the Gulf. The plant is forecast to process an estimated 2.25 trillion cubic feet (Tcf) of natural gas over 15 years. A third massive LNG project is expected to be developed in Western province by Canada’s Talisman Energy.

It remains to be seen, however, the extent to which the LNG projects will benefit the majority of the PNG’s essentially rural population and attainment of the Millennium Development Goals (MDGs). “At this stage, PNG is still a relatively poor, largely agricultural and rural-based society with a per capita GDP around Kina 3,500 or US$1,300 per head – lower middle-income - but increasingly skewed wealth distribution”, says Paul Barker, Director of PNG’s Institute of National Affairs. He adds: “It has the lowest level of achievement of MDG levels in the Pacific region and is unlikely to achieve any target by 2015.

The contribution of the agricultural sector to GDP is still substantial at 30-40 per cent and plays an essential role in providing broad-based income and livelihoods to the majority of the population, directly and indirectly, with many involved with transport and processing”. However, recent macro-economic indicators are positive. International currency reserves are at near record levels. The deficit has fallen and last year government officials say that PNG’s GDP rose between 9-10 per cent enabling some of its debt to be repaid and the promise of increased foreign investment and jobs. 

Mountain of gold in a sea of oil

Oil production and minerals, largely from two aging mines, the Ok Tedi copper and Porgera gold mine, and the more recently opened Lihir gold mine, are the backbone of PNG’s economy. PNG is ranked the 11th largest gold producer and the 13th biggest copper producer in the world. Paul Barker, Director of PNG’s Institute for National Affairs says, however, “these are relatively enclave activities in terms of providing limited employment”. Due to close in 2013, the Ok Tedi copper mine in Western province earned 4.741bn kina (€1.39bn), or 18 per cent, of the country’s GDP in 2010, although the environmental and social cost of mining activities in PNG, notably the pollution of the Fly River system downstream of the Ok Tedi mine have drawn wide media attention. The re-opening of the Panguna copper mine in Bougainville, closed in 1989 in the wake of the civil war triggered by friction over the local population’s lack of benefits from the mining activities, is under discussion [Ed: see article on Bougainville in this report]. Three new gold projects and the first ever nickel project are underway in the Ramu valley, Madang province. The country also exports silver. Oil was first pumped from Kutubu in 1992 with other fields opened at Agogo, Gobe and Moran in the Southern Highlands from where Liquefield Natural Gas is to be piped for sale to Asia.

‘Garden of Eden’

Subsistence agriculture currently supports around 85 per cent of the population although the country exports coffee produced in the Highlands, cocoa, coconut and palm oil as well as vanilla, cardamom, chillies, fruit and vegetables.

According to Michael Segal, Information Officer at the London-based International Cocoa Organisation, PNG cocoa has a “very aromatic strong, slightly bitter and slightly sour” flavour and is used to make fine chocolates in Europe. Many of those met during our report highlighted the country’s agricultural potential, including rice-growing in the Sepik region. The country currently imports rice and flour. Fish processing in Lae and Madang, boosted by the Economic Partnership Agreement signed (EPA) with the EU, is a growing industry and there’s a lot more potential to export forestry products although the illegal logging operations are of particular concern to the EU which is seeking to encourage exports of wood and wood products solely from sustainably managed forests [Ed: see interview with EU Ambassador Martin Dihm in this report].

Malum Nalu

Papua New Guinea-based journalist