4th UPDATE: PNG LNG Project To Proceed Pending Sales, Funding
December 08 2009 - 1:25AM
Dow Jones News
Exxon Mobil Corp. (XOM) and its partners Tuesday agreed to
proceed with a US$15 billion liquefied natural gas project in Papua
New Guinea, despite extending a deadline to wrap up financing.
The PNG LNG project partners also said approval of the project
is conditional on clinching binding sales agreements with two more
Asian customers. The offtake deals, along with the outstanding
financing, are expected to be completed by "early 2010", Exxon
Mobil said.
Another project equity holder, Oil Search Ltd. (OSH.AU), had
said in October that all four of the project's planned sales
agreements were expected to be finalized in the fourth quarter,
"prior to the final investment decision".
The project partners had previously indicated that they expected
to make a final investment decision Tuesday. Exxon Mobil's latest
announcement shows the project is making progress, but some
investors could be disappointed that all outstanding offtake and
funding arrangements haven't been wrapped up yet.
"Pending completion of these sales and financing arrangements,
significant project activity will commence in 2010," the head of
Exxon Mobil subsidiary Esso Highlands, Peter Graham, said in a
statement.
The project, which will have the capacity to produce 6.6 million
tons of LNG a year, is the biggest resources development undertaken
in Papua New Guinea and has the potential to transform the
developing nation's economy by doubling its gross domestic
product.
It is one of over a dozen LNG terminals planned for construction
in Papua New Guinea and Australia designed to tap an expected surge
in demand for cleaner-burning fuels from fast-growing Asian
economies nearby.
Exxon Mobil has said that PNG LNG will partly be funded by
export credit agencies, or ECAs, commercial banks and the bond
market.
Written commitments from the ECAs and commercial banks were
expected before a final investment decision, the head of Exxon
Mobil's PNG unit Peter Graham said in a speech late October.
Graham said at the time that completion of sales agreements for
the project's full capacity were "crucial to our final
go-ahead".
PNG LNG has signed binding agreements for the sale of a combined
3.8 million tons per annum of LNG to China Petroleum & Chemical
Corp., known as Sinopec, and Tokyo Electric Power Co. (9501.TO), or
Tepco.
Preliminary agreements with Osaka Gas Co. (9532.TO) and Taiwan's
state-owned refiner CPC Corp. have yet to be finalized into binding
contracts.
CPC Chairman Chu Shao-hua said Nov. 10 that the company doesn't
plan to sign any new LNG procurement deals this year because local
demand remains weak.
Osaka Gas said Tuesday that it is still in talks over buying gas
from PNG LNG, but wouldn't comment further.
Exxon Mobil said that the Papua New Guinean government has
backed into the project through the acquisition of a 16.6% stake.
That means Exxon Mobil now has 33.2%, Oil Search 29.0%, Santos Ltd.
(STO.AU) 13.5%, Nippon Oil 4.7%, PNG landowners 2.8% and Petromin
PNG Holdings Ltd. 0.2%.
Along with the Chevron Corp.-operated (CVX) Gorgon LNG project
in Australia, PNG LNG is considered by analysts as a frontrunner
ahead of around a dozen rival developments in the Australasian
region that are competing for labor, customers and funding.
Gorgon was sanctioned by Chevron Corp. (CVX), Exxon Mobil and
Royal Dutch Shell PLC (RDSB.LN) in September, making it the first
Australian LNG project sanctioned since Woodside Petroleum Ltd.'s
(WPL.AU) Pluto LNG project got the go ahead in July 2007. First gas
from Pluto is expected in early 2011.
Exxon Mobil's indication that it plans to commence major
construction work on PNG LNG next year will exacerbate concerns
about labor shortages for rival projects planning on making final
investment decision in 2010 and 2011.
In an ominous sign, Woodside last month forecast a cost increase
at Pluto of up to A$1.1 billion partly due to a shortage of skilled
trades like drillers and welders.
The Australian government said Tuesday it will loan US$500
million to PNG LNG through Australia's Export Finance and Insurance
Corp.
Autralian Trade Minister Simon Crean said that there is up to
US$3 billion of project-related contracts potentially available for
Australian exporters from PNG LNG.
"The ExxonMobil project is vital to PNG's economic well-being,
potentially putting PNG on a more sustainable economic growth
path," Crean said.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692;
ross.kelly@dowjones.com
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