COMPANY PROFILE
2015
PNG LNG
www.pnglng.com | + 675 309 7111
Commercialising PNG’s Gas Resources Editorial: Tim Hands
The PNG LNG Project is an integrated development which comprises gas production and processing facilities in the Southern Highlands, Hela, Western, Gulf and Central Provinces of Papua New Guinea. With over 700 kilometres of pipelines connecting facilities including a gas conditioning plant in Hides and liquefaction and storage facilities near Port Moresby, the facility boasts a capacity of 6.9 million tonnes per year. Investment for the initial phase of the Project stands at an estimated US$19 billion, with production and sales expected to top nine trillion cubic feet of gas over the course of its lifetime. Its operator, ExxonMobil Corp, is the parent company of ExxonMobil PNG Limited, a company which has enjoyed a long and productive history in Papua New
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Guinea. It has had involvement in exploration and production activities in Papua New Guinea since the 1930s, holding an interest in several oil and gas discoveries across over 2.1 million acres. A participant in the only oil production project in the country, it is also a large equity holder in the country’s gas resources. On top of this, ExxonMobil has
been marketing petroleum fuels and other refined products in Papua New Guinea since 1922, and today accounts for just over 35% of the market. This particular landmark LNG Project came about in part as a result of the infeasibility of a previously proposed PNG Gas Project by an ExxonMobil affiliate, back in 2004, which sought to commercialise
PNG LNG the natural gas in PNG’s Southern Highlands and transport this via a 3,000 kilometre pipeline to customers in Australia.
THE PNG LNG TIMELINE Five years on from this initial foray, and December 2009 brought one of the significant announcements in the Project’s timeline, with its venture participants approved and construction thus allowed to begin. This was bolstered by the completion of financing arrangements with lenders in March 2010, and with engineering, procurement and construction contracts (EPC) approved between late 2009 and early 2010, construction work began on the Project. It is a colossal undertaking which has an estimated 30 years’ operational lifetime, over which it is expected that over nine trillion
cubic feet of gas will be produced and sold. April 2014 saw very first vestiges of the PNG LNG Project’s production of LNG from the first train, notably ahead of schedule, while production from the second train has also started as additional wells have come online. Its completion has been the result of over 191 million work hours which saw more than 21,000 people employed by the Project at its peak. More than 9,000 of those were Papua New Guineans, and to date over 10.7 billion Kina has been spent with businesses in Papua New Guinea. In a statement, Exxon Mobil Papua New Guinea (EMPNG) Managing Director, Peter Graham, described how key this collaboration with its host country has been to the successful and somewhat unanticipated early commencement: “With the support of PNG government and
community, we are proud to have completed the PNG LNG Project ahead of schedule. The PNG LNG Project is important to the economy of Papua New Guinea and has created significant, longlasting benefits for the country.” In addition to the notable financial injection the Project has already brought to the country, alongside the creation of crucial employment opportunities during construction and operation, there is the potential here to transform the entire economy of Papua New Guinea as it moves through its development phases. This will be achieved through boosting GDP and export earnings as the LNG is commercialised, and thus providing a major increase in government revenue, while landowners will also look forward to benefiting hugely from the royalty payments they will receive.
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“This Project has brought significant economic benefits to our country that will last for generations to come,” further explains Papua New Guinea Prime Minister, Hon. Peter O’Neill. “Not only will the people of Papua New Guinea now benefit; their children and grandchildren will continue to enjoy the benefits and positive effects from this valuable resource development for many years to come.” Its success has been many years in the making, and Peter Graham underlines the extent of the achievement by the many involved parties, to have pulled this off under such intense pressure in a radio interview with Radio Australia: “I think our track record speaks for itself. If you look at where we are today, roll back the clock several years, there were lots of sceptics who didn’t think
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the project could be executed in Papua New Guinea.” These benefits have the potential to spread throughout the entirety of the economy as the Government applies the earnings from its share of the project revenues to social and economic programs. These will in turn of course have the ability to improve the quality of life of significant numbers of Papua New Guineans, by providing essential services and enhancing the country’s productivity. “In the long-term the impact is substantial on the economy of PNG,” echoes Peter Graham in the radio interview. “Obviously there is a very large impact on employment - today, we are employing something like five and a half thousand national citizens working on the project and we are spending substantial amounts of money in the country. To date
about K2 billion or around $800 million dollars has been spent on the project and you only have to look around the country to see the positive impact the project is having.” The successful and early completion of a project of this scale will also act as a vital catalyst to further gas-based industry development, as Graham continues: “I think it is very important. This project is project financed so there is a lot of interest from the lenders from around the world, in what’s going on. We’ve seen already as our project has started to ramp up, the interest in exploration and other developments in Papua New Guinea is clearly ramping up and I think people are just watching to see how this project progresses and whether it can be done on this scale in this country. If it can I
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think it is really going to open the door for significant investments.” Liquefied Natural Gas (LNG) is produced by cooling natural gas, predominantly methane, to approximately -160˚C, which both allows it to be stored without additional pressure and reduces its volume by 600 times, in turn allowing for safe transportation. An extremely cold, colourless, odourless and non-toxic liquid, it is then stored in specially designed onshore tanks and transported to the international market via specialised vessels, again designed specifically for handling the very cold LNG. Its reduced volume means that, in this form, it is a supremely economical method of transporting large volumes of natural gas over long distances by ocean-going carriers, which once shipped to its destinations around the world is then warmed or ‘re-gassified’. It can then be transported by existing pipelines
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and used as a clean and safe gas as fuel for industry, electricity generation and in homes for heating and cooking. In large part thanks to growing natural gas demand in countries where domestic production has proven inadequate to cover local needs, the global LNG trade has grown at an annual rate of around 8% since the late seventies. At the outset, the vast majority of LNG was produced in Africa and Asia, while more recently additional production has come from the Middle East and Trinidad. The United States and Europe are expected to support this substantial new LNG demand growth and supplement that currently coming from the largest consuming regions for LNG, which include Asia and Europe. May 26th last year brought about a significant milestone in the project’s ongoing evolution, seeing the first LNG cargo leave Papua New Guinea and head to Japan. This represented the first ever LNG to ever leave the country,
and marked its entry into the market as a global LNG player following a safe and successful start-up to the project. This landmark cargo was bound for Tokyo Electric Power Co. Inc. (TEPCO), and Peter Graham emphasised just how historic this moment is for PNG as a whole: “This is the country’s largest resource project and it has taken the effort of many thousands of people to bring it to fruition. With the support of government, our coventurers and the local community, we are proud to celebrate the safe completion and first cargo from the PNG LNG Project.”
“The PNG LNG Project has created significant, long-lasting benefits for the country” Here Graham touches on the scale of the achievement, and it is this same holistic support which has proved integral to the Project’s completion, which came ahead of schedule. It positions Papua New Guinea as a resource-rich nation perfectly placed to deliver natural gas, and to make a notable contribution to meeting the longterm growing demand of Asian markets. “Revenue from the PNG LNG Project will support Papua New
PNG LNG Guinea’s continued economic and social development,” continued Peter Graham in a statement, “and the PNG LNG Project demonstrates to the world what Papua New Guinea is capable of delivering.” his first shipment is expected to arrive in early June, according to JX Nippon Oil & Gas Exploration Corp, and has been earmarked for use by those thermal power plants operated by Tokyo Electric Power Co. In addition to its commencement ahead of schedule, Exxon Mobil Corp. also reported midway through last year that the plant was operating at full capacity, again some months ahead of schedule. This was a milestone it had not expected to reach before the year’s end, and its coming just three months after starting production shows exceptional performance by comparison with similar international LNG projects. This run of successes is made all the more remarkable by the extent of the challenges faced by the project’s chief developers in its early stages, the overcoming of which all lends weight to the idea that this could be the first of many similar undertakings.
Senior Project Manager, YowYeen Lee, labelled the terrain and weather some of the most challenging and wettest he had yet to see, and among such difficulties was the issue of flooding. There was also minimal pre-existing infrastructure, while extremely steep slopes were further key obstacles that were conquered in construction. In addition to these, pipes had to be airlifted in some areas because the soil could not support heavy machinery, while a lack of infrastructure meant supplemental roads had to be constructed, along with communication lines and even a new airfield.
NAMING CEREMONY Built to carry approximately 172,000 cubic metres of LNG, the PNG LNG Project’s first custom-built ship was officially named in a ceremony at Hudong Shipyard in China in January this year. The carrier, Papua, was built by HudongZhonghua Shipbuilding Group, and will be operated by Mitsui O.S.K Lines on behalf of ExxonMobil PNG Limited, with delivery to Papua New Guinea expected in early 2015.
It will work alongside three other dedicated carriers, all of which will ship LNG for the PNG LNG Project to customers in Asia, with EMPNG Managing Director Peter Graham congratulating Hudong on this landmark construction in a recent statement: “We are pleased to be celebrating another milestone with the naming of the Papua, the first custom-built ship for the PNG LNG Project,” he said. “This is a demonstration of the project’s ongoing success.” Peter Graham also speaks candidly of his intentions to build on the notable success the project has thus far enjoyed, with a number of new sources of gas under scrutiny for development. “Obviously there is a lot of work to be done to prove up reserves, and that takes some time. Typically there is drilling involved and then certification of the reserves once the drilling results are in, engineering studies and the like so it does take a number of years to get to the stage where we will have another train complete. But we are optimistic and we have a very active program underway to move expansion plans forward as fast as we practically can.”
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