By Ross Kelly
SYDNEY--Papua New Guinea, a small Southeast Asian nation better
known for its jungles and corruption, became the world's newest
significant energy exporter after an Exxon Mobil Corp-led facility
began shipping natural gas.
The cargo delivery from the US$19 billion PNG LNG project is the
first from several new liquefied natural gas, or LNG, terminals in
Papua New Guinea and Australia. These plants are due to start up
over the next three years and will mark a shift in the global LNG
trade's epicenter, away from the Middle East.
Work began on the PNG LNG project in 2010, when Asian gas users
were looking to ramp up imports of fuels that burn cleaner than
coal, and international energy companies were struggling to access
resources not owned by foreign governments. The industry's
landscape has changed dramatically since then, with companies in
North America now looking to export shale gas while China this week
signed a deal with Russia worth US$400 billion to buy gas delivered
by a cross-border pipeline.
The changes in the industry in recent years threaten to make the
market even more competitive and drive prices down for producers
but for Papua New Guinea, the start of gas shipments around three
months ahead of Exxon's schedule heralds a much-needed cash
injection to its economy. By some estimates, the PNG LNG project
could more than double the country's gross domestic product.
Exxon said the PNG LNG project will produce more than 9 trillion
cubic feet of gas over 30 years, starting with the maiden shipment
to Japan's Tokyo Electric Power Co., better known as Tepco. The
Houston-based company is already in talks with partners including
Australia's Oil Search Ltd. about expanding the plant.
"It's great for Papua New Guinea," said Jenny Haward-Jones, an
expert on the country at the Lowy Institute, a Sydney-based think
tank. "It sends an important signal to the international resources
community that things can get done here."
Still, it is unclear whether the country will be able to avoid
the so-called resource curse that befalls many developing nations
that suddenly receive an influx of cash.
"The big problem is whether the country uses the revenue from
PNG LNG to improve living standards here and equally distribute the
benefits," said Ms. Hayward-Jones. "It seems to be going well, but
you wouldn't want to predict everything will be completely
rosy."
Early completion of the project is a boon for Exxon, which is
under pressure from investors to find new sources of revenue to
boost sagging profits. Oil and gas production at the biggest U.S.
oil company has fallen every year since the 2010 acquisition of
natural-gas producer XTO Energy Inc.
"Our demonstrated expertise will enable us to progress other LNG
opportunities in our portfolio, including expansion opportunities
in Papua New Guinea and to meet growing global demand," Neil W.
Duffin, president of Exxon Mobil Development Company, said in a
statement Monday.
Still, PNG LNG faces continuing risks, including potential
disputes between landowners over the distribution of royalties,
environmental damage, and harsh operating conditions in a country
that is prone to heavy rains and earthquakes.
The gas resource for PNG LNG is located in remote parts of the
country's mountainous highlands and has to be transported to the
coast by a 190-mile, 32-inch pipeline that traverses rugged terrain
up to 650 feet above sea level. From the shore, it is transported
by a 250-mile subsea pipeline to a gas-processing terminal before
being shipped to customers in Asia including Tepco, China Petroleum
and Chemical Corp., also known as Sinopec, Osaka Gas Co. and
Taiwan's CPC Corp.
The project's infrastructure crosses lands occupied by many
local tribes that speak dozens of different languages and that are
often at war.
The Panguna copper mine on the Papua New Guinean island of
Bougainville was shut down in 1989 after locals attacked the mine
and its staff amid claims of environmental pollution and unfair
distribution of government proceeds.
Peter O'Neill, Papua New Guinea's Prime Minister, is optimistic.
He said Monday that PNG LNG will benefit the country for
generations.
Exxon and Oil Search are looking to aggregate gas to support new
processing facilities for an expansion of its annual production
capacity beyond 6.9 million metric tons of LNG. Among their options
are a large gas resource at P'nyang, also located in the country's
highlands, and further exploration prospects near fields that
already supply the PNG LNG plant. Oil Search is also involved in a
joint venture that includes InterOil Corp. and Total SA which is
planning to build the country's second LNG plant by tapping two
large gas discoveries in the country's south.
Write to Ross Kelly at ross.kelly@wsj.com
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