Oil Search $20bn LNG expansion in Papua New Guinea setback

Oil Search’s plans to secure a $20bn LNG expansion in Papua New Guinea have been dealt a blow.

After kicking off negotiations a week ago on P’nyang, the PNG government said on Friday talks had reached a stalemate.

Oil Search’s plans to secure a $20bn LNG expansion in Papua New Guinea have been dealt a blow after the government accused its partner ExxonMobil of refusing to consider deal terms in a major setback for the gas development.

The P’nyang gas project forms the second plank of a bid by Oil Search and Exxon to double LNG exports from the Pacific nation by 2024 after the companies and operator Total agreed the first part of the enlarged facility through the Papua LNG contract back in September.

After kicking off negotiations a week ago on P’nyang, the PNG government said on Friday talks had reached a stalemate.

“The state negotiating team has done extensive preparatory work to draft terms that are in line with international standards and will ensure a good deal for the people of PNG. It is disappointing Exxon has refused to even consider these terms and we urge them to reconsider their position,” PNG Energy Minister Kerenga Kua said in a statement.

PNG has been under pressure to win a better deal for the state over concern it failed to strike competitive terms for the original PNG LNG plant which started operating in 2014 and is jointly owned by Oil Search, Exxon and Santos.

Mr Kua said PNG gas reserves can’t be “money-making machines” for big energy companies.

“The state negotiating team is committed to working with international oil companies to develop our natural resources as quickly as possible to support the development of PNG – but our resources cannot become money‐making machines for oil companies at the expense of the nation. We must get a fair deal.”

The PNG government said its terms are similar to oil and gas projects in Indonesia and Malaysia and noted previous energy developments had seen the state get a smaller stake than comparative international deals.

Exxon said discussions with the PNG government to finalise the required gas agreement for P’nyang are ongoing.

“An agreement is needed before decisions can be made regarding front-end engineering and design for the three-train development at the PNG LNG plant site. As a matter of practice, we don’t comment on commercial discussions,” an Exxon spokesperson said.

Oil Search declined to comment.

Some analysts have previously said PNG would be unlikely to impose tougher conditions on P’nyang given sovereign risk concerns if it suddenly switched investment terms.

Total made some concessions on Papua LNG as part of government negotiations including a national content plan for the gas export project and third-party access to petroleum pipelines.

However, before that deal was struck there was a tense standoff between the French oil giant and Mr Kua who was under pressure to improve the state’s return after a previous pact was signed with ousted Prime Minister Peter O’Neill earlier in the year.