Santos sets time line of whether it will proceed with PNG’s second gas project
Papua LNG is a key growth project for Santos and the Pacific nation but it has beset by delays and a company executive has revealed when a decision will be made on the development.
Santos says a decision will be made on whether to proceed with a $15bn LNG development in Papua New Guinea next year.
A second facility in PNG would cement Santos’s position as a leader player in the region alongside the likes of ExxonMobil and accelerate economic growth in the Pacific nation, though there remains significant uncertainty around the project.
French giant TotalEnergies last year delayed a final decision on whether to proceed with the Papua LNG project after quotes from contractors meant the development was deemed uneconomical, and with inflation increasing the cost of new infrastructure some analysts have questioned how the partners can trim costs.
Santos executive vice-president for PNG Brett Daley said the company was still working through data from Total about updated costs. He stopped short of offering any clues about the viability of the project, but he said no further delays were expected.
“We are confident that we will be FID’ing (final investment decision) in 2025,” Mr Daley told The Australian.
A decision was initially expected in 2023 before being pushed back to 2024.
Santos owns nearly 23 per cent of the proposed second LNG facility in PNG, and there is doubt about the willingness of the South Australian-based company to fund another significant outlay after several years of high capital expenditure.
Santos is poised to complete work on its $5.7bn Barossa LNG development, while work is progressing on its $US2.6bn ($3.8bn) project in Alaska known as Pikka.
Committing more cash to development would stoke tensions with some of Santos’s shareholders frustrated by the sluggish performance of its share price.
The company insists the share price will be supported as these projects begin to generate returns.
Mr Daley offered few clues as to Santos’s intentions, but stressed the company would be disciplined.
Still, there remains keen interest from the shareholders of Papua LNG.
Total chief executive Patrick Pouyanne said it and partner parties, including ExxonMobil and JX Nippon, continued to have confidence in the project and PNG amid “high interest” from LNG customers – a stance echoed by Mr Daley.
“Supplying affordable energy to our Asian customers is really important to us and there is no better place to do it than PNG from a proximately point of view,” said Mr Daley.
Santos is able to tap that demand through its PNG LNG venture, of which it is the largest equity owner with a stake of 37.5 per cent. PNG LNG is the only gas export project in Papua New Guinea presently.
Demand for LNG continues to grow, especially in Asia as countries move to meet net zero commitments by exiting coal power.
PNG is ideally placed and although sometimes volatile the country has targeted bolstering its gas production to fuel economic growth.
The PNG assets are widely seen as the crown jewel in Santos’s asset suite, and were understood to be appealing to Woodside when the two explored merger talks earlier this year. A deal failed to materialise as both sides said they could not see a viable agreement being stuck.
Although under pressure to lower spending, Pikka and Barossa are due to be finalised within months, possibly giving Santos the wriggle room to increase its exposure to the PNG – a country that Mr Daley said was extremely welcoming to the gas industry.
“We have a lot of support from the government there,” said Mr Daley. “We have a great sequence of assets that will see us produce gas there well beyond 2050.”
Santos has faced a spate of legal challenges to its Australian expansion, most notably to its Barossa project. It suffered delays as a result of legal challenges to its plans to develop the offshore gas resource in the Timor Sea, and while it ultimately won the company is wary of more opposition and time-consuming complaints.
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