Hopes fade for PNG pipeline
By Nigel Wilson, Energy writer
June 11, 2001
HOPES are dimming for the giant $6.5 billion Papua New Guinea gas and pipeline project with one of the main players blaming both the Australian and PNG governments for shortsighted policies.
Oil Search chairman Trevor Kennedy said the project was being badly affected by Australian government parsimony and the inability of PNG to deliver community services to landholders.
Already the operator has announced a further delay in a start-up date, while local landholders have been killed in a dispute over their share of the project.
Speaking in Port Moresby, Mr Kennedy claimed recent clashes between landholders were the result of the Government in Port Moresby failing to deliver on promised schools, hospitals and roads to which project participants had contributed as far back as 1990.
Last week at least 25 people were reported killed as rival clans fought over ownership of land earmarked for the project.
Mr Kennedy's remarks came after the new project operator, Exxon Mobil, pushed out the start-up date for gas delivery by two years to 2005 following the inability of project marketers to sign up firm contracts with Queensland customers.
Mr Kennedy told Oil Search's annual meeting on Friday that, given the expected benefits of the project, it was disappointing that it had not been embraced more purposefully and determinedly by government.
"While it has the support of all political parties, governments on both sides of the Torres Strait haven't given it the high priority it deserves," he said.
"The Australian Government's support has so far been little short of parsimonious, amounting to little more than $15 million in political risk," he said.
Exxon has a 30 per cent stake, Oil Search has 26 per cent and Orogen 13 per cent. Other partners include previous operator Chevron, Santos, Japan PNG Petroleum and local landholders. The Australian Government in February reiterated that it believed the pipeline project was important for PNG's future development.
It has major project facilitation status, meaning that once committed it will receive rapid Australian government approvals.
But the Government has consistently rejected the view that it should loan money to the PNG Government so that it can take up a $700 million equity position in the project.
Mr Kennedy said the venture was of critical importance both to Oil Search and the PNG Government but progress to commercialise PNG's gas reserves was frustratingly slow.
The project, which is still awaiting formal approval, involves construction of a 3250km pipeline from PNG's gas reserves, across the Torres Strait to Gladstone with a possible extension to Brisbane.
But Mr Kennedy confirmed the project still had to secure markets and without these it could not agree to engineering studies.
Gas has been promoted to a string of minerals processors, industrial operations and electricity generators along the Queensland coast but no firm contracts have been signed.
The PNG Gas project would also involve stripping 15,000 barrels of condensate a day to meet PNG transport needs, and the production of LPG.
The project proponents were rocked last month when Woodside and Shell announced they had an exclusive letter of intent to supply Queensland Nickel's Yabulu nickel and cobalt refinery at Townsville with gas from the Timor Sea Greater Sunrise reserves.
Mr Kennedy described the announcement as a wake-up call for some parties who thought that Timor Sea competition was not there.
Mr Kennedy said the project would help stabilise PNG and the region, and so a "prevention is better than cure" attitude should characterise Australia's approach.
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