Brent Emmett, CEO, Horizon Oil: Interview

Interview: Brent Emmett

How would you assess the investment framework for the oil and gas industry in Papua New Guinea, particularly in the area of gas-to-electricity?

BRENT EMMETT: Several good policies have been introduced over the years to reform the energy sector in PNG, but there has been a lack of consistency in implementing them on the part of the administration, and consequently some of them have been laid aside. For instance, domestic obligation gas – a concept the government introduced in the early 2000s to address the issue of electrification – has only recently been brought forward by the present administration.

Although the initiative is commendable, it is hard to understand why this was not implemented earlier, given the country’s abundant gas. Individual diesel and heavy fuel oil generators continue to power just about every city and business in the country. Given the environmental and economic cost of such a solution, a more sustainable approach will need to be put in place. Only something like 6% of the population in PNG is connected to the grid, so there is still a long way to go.

How much of its output will your gas projects provide to the local market, and what impact do you expect this to have in Western Province?

EMMETT: At the Stanley field, for example, we and our joint-venture partners, which include Repsol, Osaka Gas and Mitsubishi, have agreed to provide as much as 15% of project gas output for domestic consumption. In the event that the consumer market is not able to absorb this capacity, after a certain period of time has elapsed, we are allowed to export the equivalent amount of gas. This seems to be a rather pragmatic solution to the issue, as the government is our partner in the Stanley field development, with its 22.5% stake, and it serves no one’s interest to leave these resources in the ground.

The forecast production life of the Stanley, Elevala and Ketu fields is 20-25 years, and we expect to contribute to the economic growth of Western Province by providing gas for power generation to the Ok Tedi mine and for many towns and villages along the way. We also believe Stanley gas should be used to provide power to the Frieda River copper-gold project, which is one of the world’s largest undeveloped deposits. Guangdong Rising Asset Management Company's recent takeover of the project from Australian miner PanAust is likely to greatly enhance the prospect of it being developed in the near future. We estimate that the cost of delivering electricity to that location and to the Ok Tedi Mine through gas-fired power stations will be cleaner, more reliable and one-third cheaper than the current liquid fuel model. The social and economic impact of such a change will be substantial.

What would be the economic impact of a better electrification network in PNG?

EMMETT: One need not look very far in the region to see other success stories. Take Thailand, a country with abundant gas reserves. Over the years, that gas has found its way onshore and has been used for power generation to the benefit of local industry and manufacturers. Its use has spurred growth in petrochemicals and helped to lift health and education standards. It is hard to quantify its actual contribution to GDP, but it has certainly improved overall economic activities. I see no reason why it would be different in PNG, bringing tremendous social and economic benefits.

The present administration has to be commended for tackling the issue of domestic obligation gas. It is great news that part of the output from the Hides gas fields will now be used for power generation, reaching customers as far to the west as Tari. In the long run, this is likely to create an infrastructure corridor, where transmission lines carry power that can be used by industries, towns and villages along the way. The next step will be to build new roads, but it is certain that having power is a catalyst for growth just about anywhere. In light of recent discoveries and the success of the first liquefied natural gas project, the time has come for PNG to make the most of its natural gas.