Papua New Guinea Paves Way for LNG Expansion

A long-awaited project led by France's Total SA (TTFNF) that will help double liquefied natural gas (LNG) exports from Papua New Guinea has come another step closer, with the government agreeing to set financial terms early next year.

The LNG expansion, which analysts estimate will cost $13 billion, is crucial to the Pacific island nation's economy as LNG is its biggest export earner, while demand for the fuel is surging in international energy markets.

Prime Minister Peter O'Neill said in the country's capital of Port Moresby on Friday that "physical terms" had been agreed. He said negotiations over how revenue would be shared in the community and provincial governments required more work.

"I'd say we are almost 50 to 60 percent through already about our understanding of revenue sharing," O'Neill said, in response to questions from Reuters.

Disagreements over land-owner rights and revenue-sharing agreements have been an almost constant feature of resource development in PNG.

A non-binding memorandum of understanding (MOU) signed on Friday is basically a commitment by the government to finalise a gas agreement in early 2019, which would lead to the development of Papua LNG, run by Total.

The signing was held on the sidelines of the PNG-hosted Asia-Pacific Economic Cooperation forum, where Total Chief Executive Patrick Pouyanne said he hoped to make progress on the agreement quickly.

"There is still some work to be done, but we are ambitious and I'd love to come back not in two years but in 10 months or before," Pouyanne said.

Papua LNG will supply gas from the Elk-Antelope fields for two new processing units, called trains, at Exxon Mobil (XOM)'s PNG LNG plant.

At the same time, Exxon Mobil plans to develop gas at the P'nyang field to help fill a third new train at the plant. All together the projects will double the plant's output to around 16 million tonnes a year.

Exxon said in an emailed comment that it was pleased to see progress on the Papua LNG talks.

Oil Search, a partner in both Papua LNG and PNG LNG, said all parties were "aligned on the need to ensure that new LNG developments in PNG remain competitive with other new LNG projects worldwide".

The companies are racing to start exporting from the new trains by 2024, when the LNG market is expected to need new supply to meet rapidly growing demand in Asia. But analysts say that timeline might be hard to meet as a final investment decision may not come until 2020 or 2021.

"Ultimately the timeline for Papua will be dictated by Exxon's patient and disciplined centralized decision making process, and all other parties will just need to fall in line with that," said Credit Suisse analyst Saul Kavonic.

Analysts estimate the expansion will cost around $13 billion, well below the $19.5 billion cost of the original project, which involved building a wide range of infrastructure from scratch, including a 700-km (435-mile) pipeline through the nation's rugged highlands down to the coast. The government is aiming to strike better fiscal terms for the country than it did with Exxon Mobil's PNG LNG project in 2009, when it was looking secure the biggest foreign investment in the country amid the global financial crisis.

(Reporting by Jonathan Barrett and Sonali Paul; Editing by Joseph Radford)