Multiple projects to shore up PNG’s position as a centre of energy production

A number of final investment decisions expected in the short and medium terms have the potential to galvanise Papua New Guinea’s economy. State-owned oil and gas company Kumul Petroleum Holdings (KPH), is at the forefront of efforts to create an energy hub in the Western and Gulf Provinces, known as the Kikori Energy Hub. In addition, a number of international oil companies are working to develop new gas deposits, which have the potential to sustain PNG’s economy for decades to come.

Gas Economy

As an extension of the proposed Western Pipeline project, the Kikori Energy Hub aims to aggregate all stranded gas fields in the Western Province. Horizon Oil has taken major steps in the development of area gas and condensate resources, including at the Stanley, Ketu, Elevala, Ubuntu, Douglas and Puk Puk fields. In addition, preliminary front-end engineering and design (FEED) work on the Western Pipeline project began in 2017, despite a lack of financing limiting design concepts.

Upon the proposed project’s completion, gas from stranded Western provinces fields is planned to be transported to the coast for export via PNG’s first floating liquefied natural gas (LNG) vessel. KPH confirmed in August 2017 that it had signed an agreement with US-based KBR, a global oil and gas engineering and construction services provider, to carry out conceptual downstream development and feasibility studies for the energy hub, as well as plans for the 1.5m-tonne-per-annum floating LNG vessel. In November 2017 China’s Wison Offshore & Marine, a subsidiary of the Wison Group, announced it had also signed a memorandum with KBR for cooperation on the project.

The primary goals of KPH’s endeavours to create the Kikori energy hub are focused on generating in-country value (ICV), seeking a positive return on investment and contributing to sustainable economic growth. The decision to utilise the Western Pipeline and the floating LNG unit project instead of exporting gas into the other major LNG projects was driven primarily by an analysis of Western Pipeline downstream commercialisation options, which concluded that while the return on investment for exporting gas into the other major LNG projects was positive, the contribution to sustainable economic growth over the long term would be minimal.

In line with its goals to maximise its contribution to the economy, KPH also proposed plans to provide electricity to remote areas via a newly built 180-MW gas-fired power plant. According to initial plans, 100 MW from the power plant will be allocated to the Western and Gulf Provinces. The state enterprise also proposed plans to enhance ICV by creating a number of downstream projects, such as methanol and petrochemical by-product processing facilities, as well as an LNG storage and export facility to encourage electrification in rural areas.

KPH, through its acquisition of Mitsubishi assets now holds a stake in the Stanley, Ubuntu, Douglas and Puk Puk gas fields. In late 2017 KPH was in talks with Spain’s Repsol and Horizon Oil to aggregate the remaining Western Province fields under the umbrella project, according to industry media reports, although Repsol has since sold its exploration and development permits to Chinese oil and gas exploration and production firm Balang International. Early construction work is expected to start in early 2019, once further conceptual and FEED analysis of upstream, midstream and downstream facilities is completed. According to local reports, KPH is aiming to commence the first shipment from the Western Pipeline in early 2023.

Added Benefits

A public statement by KPH about the establishment of downstream facilities in the Gulf Province revealed that initial analysis had indicated such facilities would create considerable ICV if located in the Kikori District of Gulf Province. While further analysis needs to be done to understand the full impact of the KPH project, increased power generation, job creation and infrastructure development would be beneficial to the involved regions. Initial high-level projections suggest that KPH’s LNG project would create up to 30,000 direct and indirect employment opportunities during the construction phase, and upwards of 4000 direct and indirect jobs in the operational phase.

The project also presents interesting opportunities to tackle long-standing issues in PNG. While the initiative is of national importance, it will have to contend with legal ambiguities over land rights in local communities. One factor that may make people more amenable to this project than previous ones is the intention to utilise a portion of the gas produced to electrify rural areas.

Three Trains

Another major project in the development stage would bring together PNG LNG, the flagship $19bn project led by ExxonMobil; the P’nyang field located in the Western Province; and the Papua LNG project, which is currently developing the Elk-Antelope gas field.

The three-train expansion concept for the PNG LNG plant near Port Moresby would see one new train dedicated to gas from the P’nyang and PNG LNG fields and two trains dedicated to gas associated with the Papua LNG project. The three trains together would have a total capacity of approximately 8m tonnes per annum.

The project has especially gained ground following a recertification study by oil and gas consulting firm Netherland Sewell & Associates in early 2018, which estimated ground resources for the P’nyang gas field at 4.36trn cu feet, some 84% higher than previous estimations made in 2012.

As of mid-2018, project stakeholders were working with the government to fine-tune the proposal and secure the development licences needed to develop the P’nyang field, which covers around 425m sq metres. ExxonMobil holds a 49% interest in the block, followed by Oil Search with 38.5% and Japanese company JX Nippon with a 12.5% share. Meanwhile, Papua LNG is majority controlled by France’s Total with a 40.1% share, followed by ExxonMobil with 37.1%, and PNG exploration company Oil Search with 22.8%. Cost estimates for the three-train concept had yet to be released.

On the Cusp

The gas composition at the Elk-Antelpoe fields is materially different from the gas processed at the PNG LNG facility. Consequently, studies have been undertaken since early 2018 to determine options for co-processing and sharing of infrastructure. The results of the testing will ultimately determine the infrastructure co-sharing options between PNG LNG and Papua LNG, which will have a considerable impact on the cost effectiveness of each project. Still, project investors have determined that the P’nyang and Elk-Antelope gas fields alone represent sufficient resources together to underwrite at least two trains, with additional reserves found from l exploration making the three-train development commercially viable.

In early 2018 progress on the Elk-Antelope and P’nyang gas fields made significant headway, with stakeholders reaching a broad agreement for the preferred development of the project. The final agreement will take into consideration the new domestic market obligation requirements, which require that a certain percentage of gas reserves be made available for the domestic gas market for power generation and local industrialisation initiatives (see analysis). Joint venture partners are targeting FEED entry by the end of 2018, and a final investment decision by the end of 2019 at the earliest. If the proposed development concept is approved, it would more than double the capacity of the existing PNG LNG power plant in Port Moresby.