The LNG Project
Liquefaction is the process by which gas is cooled and compressed so that it can be easily transported from its source to another location. A pipeline can be used to transport natural gas from where it has been extracted to another location where it is used. As there is essentially no domestic market for gas in Papua New Guinea, the only practical solution for the monetization of our gas resource is to transport it using specially configured ships after it has been processed into the form of LNG. LNG is a term that describes the result of a process of cooling natural gas to a temperature of -162°C and compressing it into a volume approximately 1/600th of its original volume.
Before gas can be processed into LNG, it must be gathered from the source wells using a piping system, water and condensates must be “stripped”, or separated, from the “dry” gas and it must be transported through a pipeline to a liquefaction facility (which is usually located adjacent to a shipping terminal).
We, together with our partners, are planning the development of an LNG Project involving the construction of liquefaction facilities to be built on the coast in the Gulf Province of PNG. As presently planned the LNG Project is a staged project currently planned to be built in three stages (subject to PNG approvals) namely:
- Stage 1
Start up production: an initial capacity of 3.8mtpa of LNG with a condensate stripping unit with a capacity of 600 to 900 mmcf/d.
- Stage 2
Build Additional Production Capacity: Target ramp-up of capacity up to 8 mtpa LNG production, with a condensate stripping facility capacity of 1,350 mmcf/d capacity; and
- Stage 3
Potential Expansion of Production: The potential final ramp up will be to 11 mtpa with condensate stripping facilities reaching 1,800 mmcf/d capacity.
We can provide no assurances that we will obtain the financing and approvals necessary to proceed with the LNG Project in this manner, or that we will have sufficient gas resources to support the potential expansion stage.
Initial engineering design was undertaken in relation to the LNG Project. The regulatory and taxation regime with the State was established with the execution on December 23, 2009 of the LNG Project Agreement. This agreement also provides for the participation by the State in the LNG Project, allowing it to take up to a 20.5% ownership stake. Affected landowners are able to take an additional 2% stake bringing the total to 22.5%.
On November 16, 2012, we were notified by the Prime Minister of Papua New Guinea Hon. Peter O’Neill that the NEC had conditionally approved our LNG development project in the Gulf Province. This decision clears the way to proceed with our plans for the development of an LNG plant in the Gulf Province with initial planned output of a minimum of 3.8 million tonnes per annum. The decision also approves an option for the State to acquire an additional 27.5% interest in the Elk and Antelope gas fields, over and above the 22.5% interest to which it is entitled under the Oil & Gas Act, on terms to be negotiated with us. The NEC further approved the establishment of a State negotiating team to discuss and agree to the necessary amendments to the 2009 LNG Project Agreement between the State and Liquid Niugini Gas Limited, to give effect to the NEC decision, and to agree on the terms on which the State could acquire the additional interest. The NEC decision confirms that the basis of the acquisition will be on commercial market terms. The NEC decision also includes as a condition of its approval that the LNG plant operator must be an internationally recognized operator of the planned LNG facilities.
During 2010, we and Pac LNG pursuing the development of the LNG Project by exploring the use of a modular plant able to be expanded incrementally from an initial position of 2 mtpa, and to explore locating this plant in the Gulf Province rather than near our existing refinery outside of Port Moresby. Advantages perceived with this approach included the potential acceleration of first production and reduced operational risks. In line with this revised approach, certain initial conditional agreements were entered into with EWC for development of the LNG Project. The agreements remain conditional and the parties may elect not to proceed with the LNG Project on the terms specified in those agreements or at all.
The infrastructure required for the LNG Project as currently envisaged includes a jetty and breakwater for an onshore LNG loading facility with expansion potential and approximately 70 miles (115 kilometers) of pipeline from the Elk and Antelope fields to the coast. The wells and the processed gas pipeline running from the Condensate Stripping Project to the coast in the Gulf Province will be the responsibility of the owners of the Elk and Antelope fields, including us and our upstream partners.
Construction of the proposed LNG Project and related infrastructure by us and our joint venture partners would take a number of years to complete. No assurances can be given that we will be able to construct the proposed LNG facilities or as to the timing of such construction.
At present, the LNG Project is being pursued by us in joint venture with Pac LNG. Our interests in th e project are held through an incorporated joint vent ure entity, PNG LNG which in turn wholly owns those entities formed in Papua New Guinea to pursue the LNG Project (see “Material Contracts – LNG Project Shareholders Agreement dated July 30, 2007”).
We are currently seeking an internationally recognized LNG operating and equity partner for the co-development of the LNG Project, which may include the acquisition of an interest in the Elk and Antelope fields. In the event that this search is successful it is likely that our interests in the LNG Project, and those of our partners, will be reduced.