Papua New Guinea: $5.5bn link: Foot on the gas - Sydney Morning Herald
Sydney Morning Herald, Thursday April 15
By KATE ASKEW and ANTHONY HUGHES
The $US3.5 billion ($5.5 billion) Papua New Guinea to Queensland gas pipeline cleared a major hurdle yesterday by securing enough gas reserves to underpin bankable agreements with customers, putting the onus on the sponsors to sign up customers.
Yesterday's agreement, that adds gas from the Hides field in the PNG highlands to the nearby Kutubu reserves, was secured after protracted negotiations with Exxon that have pushed the project's timetable out by nearly a year.
Yesterday's deal also throws the spotlight on one of the major players - Port Moresby-based Oil Search - which is being circled by Woodside Petroleum which is after a stake in Oil Search ahead of the pipeline being given the go-ahead.
Woodside has made its interest in the gas market on Australia's east coast public, with the PNG-to-QLD gas pipeline the only major coming development that it, or its big brother Royal Dutch/Shell, does not have a slice of. Pressure has been mounting on Woodside to come up with a major new project as its earnings growth tapers after next year.
Nevertheless, the pipeline sponsors now need to turn existing memoranda of understanding for gas supplies - there are four in place representing between 100 petajoules and 139 petajoules of gas, including an agreement with Comalco for its proposed but not yet agreed upon alumina refinery at Gladstone - into formal contracts before the project can be given the nod. It is estimated that the baseload needed to underpin the project is about 120 petajoules.
With the Queensland Government backing up as a potential major customer through its energy agencies - it is seen to be keen to take part in a possible expansion of the pipeline through to Brisbane - the pipeline's future is becoming more certain.
Discussions with the Queensland Government-owned energy agencies including Ergon and Energex are well advanced, with speculation that formal contracts representing about two thirds of the baseload requirement of the pipeline will be agreed to soon.
"A number of these Government-owned corporations were close to finalising commercial negotiations regarding gas contracts and it was expected that these proposals would be formally presented to the Government over the next few months," Queensland Deputy Premier Mr Jim Elder told a press conference in Brisbane yesterday.
If the Queensland Government agencies can agree on contracts, the need for Comalco's custom is substantially diminished.
"As one of the key sensitivities of pipeline customers to sponsors was uncertainty about reserves, the agreements allow us to assure the market that there are adequate reserves to underpin the project," Oil Search managing director Mr Peter Botten said yesterday.
As the preferred developer of the Australian section of the pipe, AGL has now also joined the project sponsors to market the gas to customers in Queensland.
AGL managing director Mr Len Bleasel said securing Comalco to take gas from the pipeline was important but the project could still proceed without it. "It's easier with Comalco and we are going to try hard to get them," he said.
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