The PNG pipeline project: Plenty of customers lining up
Exxon move puts the pressure on Comalco
Australian Financial Review, Thursday April 15
Comment, By Ian Howarth, Resources Editor
The $5 billion Papua New Guinea to Queensland gas
pipeline project has overcome one of its biggest hurdles
by securing sufficient gas reserves to underpin any
long-term gas contract likely to be available in the
Queensland market.
The agreement by Exxon to commit a large part of the
gas reserves of the Hides field in PNG to the project has
now tipped the scales firmly in favour of the project
proceeding.
At the same time the pressure has increased on Comalco
to declare its hand on its plans for an alumina refinery in
Queensland.
Comalco can no longer stall by playing the Queensland
gas promoters off against Malaysia where the company
may or may not be able to secure a more friendly fiscal
arrangement for its refinery.
The PNG to Queensland gas pipeline project has almost
gathered sufficient momentum to proceed regardless of
Comalco's intentions, leaving Comalco now as the most
likely loser should it choose not to build its refinery in
Queensland.
Chevron Corp, as the principal promoter of the project,
and its partners, Oil Search, AGL and Orogen Minerals
are now able to offer firm deals to prospective gas
buyers on the basis of becoming "foundation" customers
of the project.
Foundation customer status will carry with it special
privileges in terms of contract flexibility, gas price, and
importantly, priority of supply in a competitive market.
Chevron was at pains yesterday to note that while the
project could proceed without Comalco, it would prefer
to have Comalco on side.
But there are plenty of other customers lining up.
To fly, the PNG to Queensland gas pipeline project
needs initial customers for about 120 to 140 petajoules
of gas a year. Comalco is likely to require about 27 Pj a year.
But Chevron has signed memoranda of understanding
with Stanwell and NRG, both large-scale Queensland
power generators keen to use gas.
It also has completed advanced negotiations with
Queensland Alumina Ltd, nickel producer QNI Ltd,
Ergon and Energex, both power generators operating in
the State's south-east. Chevron could have asked those
companies to sign MOU's but preferred to wait until the
gas reserves issue was clarified.
afr.com.au
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No time left for gas pipe dreams, says Government
Australian Financial Review, Thursday April 15
By Garry West
The participants in the $5.5 billion project to transport
gas from Papua New Guinea to Australia yesterday
turned up the heat on potential customers to sign
contracts as they prepared to renew their marketing
effort over the next few months.
PNG Gas Project operator Chevron Corp and the
Queensland Government singled out Comalco Ltd for
special attention over its ongoing deliberations on
whether to locate a proposed $1.2 billion alumina
refinery in Gladstone or Malaysia.
Deputy Premier Mr Jim Elder said time was running out
for Comalco to make a decision, while Chevron claimed
the project could go ahead without the refinery.
"There's no longer any rocks for customers to hide
behind," project director Dr John Powell told a news
conference.
He was speaking after Oil Search Ltd, a 27.5 per cent
shareholder in the giant Hides gas field, announced it had
signed an agreement with field operator Exxon Corp to
ensure adequate reserves were available to underpin the
project, which includes a $1.5 billion pipeline to
Queensland.
It will be based on gas from Hides and the nearby
Kutubu field operated by Chevron.
As revealed by The Australian Financial Review last
week, Oil Search will also represent Exxon's share of the
project in marketing the gas following the breakdown of
talks between Exxon and project operator Chevron
Corp over how the fields could be combined.
It will be joined by Australian Gas Light Company Ltd,
which has already won the right to build, own and
operate the Australian side of the 2,655 kilometre
pipeline along with Malaysia's Petronas group.
"We have talked about a time frame of two to three
months to have these major foundation customers in
place. If that were to happen we would deliver first gas in
the first half of 2002," said AGL's group general manager
sales and marketing, Mr Michael Fraser.
Mr Elder said Comalco had been exploring the possibility
of a new refinery in Australia for more than 20 years but
time was running out to proceed and take advantage of
$150 million of government funding.
Dr Powell said the project could proceed without
Comalco because there was sufficient demand from other
users to make it viable.
They included power stations in Townsville and
Gladstone, other mineral processors in central
Queensland and possibly the Northern Territory, and
customers in Brisbane.
"We want them [Comalco] there but the [demand] base
is sufficient that if they decide to go somewhere else we
can do it without them."
Dr Powell said more than 4 trillion cubic feet of reserves
were available from Kutubu and a substantial part of
Hides to support 30-year contracts with foundation
customers using more than 110 petajoules of gas a year.
He hoped a bankable agreement would be in place by
mid-year.
Oil Search managing director Mr Peter Botten said
discussions were continuing with Santos Ltd, which owns
the remaining 25 per cent of Hides not covered by the
agreement, about including its share of the gas.
He denied Exxon was withdrawing from the project but
said his company moved in after Exxon had failed to
reach agreement with Chevron on the issue of unitisation,
or how to value each partner's share of the combined
field, in four months of negotiations.
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