Bloomberg: Exxon to Provide Gas Reserves to Papua New Guinea-Australia Pipeline
Exxon Agrees to Provide Gas Reserves to PNG Pipeline
Brisbane, Australia, April 14 (Bloomberg) -- Exxon Corp.
has agreed to supply natural gas to the US$3.5 billion project
to pipe gas from Papua New Guinea to Australia, clearing the
way for final sales agreements with gas customers.
Exxon, the largest U.S. oil company and the holder of the
biggest PNG gas reserves not included in the project, agreed
to let Oil Search Ltd. and its partners including Chevron
Corp. and Mobil Corp. use its gas from the Hides field for the
pipeline to Queensland state.
''The marketing effort basically starts right now,''
said Peter Botten, managing director of Oil Search, the
largest owner of oil and gas reserves in Papua New Guinea.
''The project's sponsors can now assure customers in
Queensland that adequate gas reserves are available .. to
sustain a 30-year project,''
The holders of about 8 trillion cubic feet of gas
reserves in Papua New Guinea have been working for years to
find a way to develop them profitably, as there's not enough
local demand in the mineral-rich developing nation of 4
million people. Some geologists estimate the country's gas
reserves may total 40 trillion cubic feet.
Botton said the remaining hurdle for the 2,500 kilometer
pipeline to Gladstone on Queensland's central coast is signing
binding agreements with potential customers such as Comalco
Ltd., Australia's largest aluminum producer, and Stanwell
Corp., an electricity generator owned by the Queensland
government.
The project already has memorandums of understanding with
some likely buyers and ''to convert those into bankable
documents should take no more than two or three months,'' said
John Powell, a Chevron employee who is director of the PNG Gas
project.
Still, the PNG Gas project won't meet its original target
of shipping its first gas to Queensland by the end of 2001.
Australian Gas Light Co. expects it to flow in the first half
of 2002, said Michael Fraser, group general manager energy
sales and marketing at AGL, which along with Petroliam
Nasional Berhad, or Petronas, the Malaysian state oil company,
will build the A$1.5 billion section of the pipeline down the
Queensland coast.
AGL also announced that its marketing arm has been
appointed to help the PNG Gas partners sell the gas.
Adequate Supplies
Shares in pipeline backers listed in Australia gained on
today's news. Oil Search rose as much as 1.5 cents, or 0.8
percent, to A$1.92. Orogen Minerals Ltd., a minerals and
energy company controlled by the Papua New Guinea government,
rose as much as 7.5 cents, or 4.5 percent, to A$1.76.
Shares in Santos Ltd., which in February agreed to buy a
25 percent stake in Hides from Oil Search for as much as US$90
million, remained unchanged at A$4.50.
Exxon holds 47.5 percent of Hides and operates the field,
while Oil Search has 27.5 percent. Santos has just paid Oil
Search US$55 million for its Hides stake, and will pay as much
as US$35 million more if the pipeline goes ahead.
''Discussions will continue with Santos'' on their role
in the Gas project, which may include ''a key role in security
of supply,'' said Botten. Santos is the largest holder of
existing gas reserves serving Queensland.
The PNG Gas project partners, all of which have a share
in the exploration blocks containing Kutubu, Papua New
Guinea's largest oil field, didn't find gas with their Nomad-1
well a year ago.
This left Hides, one of the largest gas discoveries in
Australasia with more than 5 trillion cubic feet, as the only
chance to provide sufficient reserves.
Chevron and Exxon negotiated for months, unable to agree
on how to share the spoils from developing the gas reserves.
The Oil Search agreement announced today could only be reached
once they had given up on combining the Hides and Kutubu
fields into one joint venture, said Botten.
Oil Search signed the agreement with Exxon's subsidiary
Esso Highlands Ltd. and said it will ''enable adequate
supplies of gas to be available''. Exxon didn't immediately
comment and Oil Search said details of the pact were
confidential.
''There are no longer any more rocks for customers to
hide behind'' now that more than 4 trillion cubic feet of
reserves have been confirmed for the pipeline, said Powell.
Key Customer
A key potential customer is Comalco, whose proposed A$1.4
billion (US$900 million) alumina refinery at Gladstone would
use 27 petajoules of gas a year -- about one-quarter of
the demand required to start building the pipeline.
Comalco, controlled by Rio Tinto Plc, the world's largest
mining company, was offered A$100 million in incentives
earlier this year by the Australian government to encourage it
to go ahead. Queensland state has offered Comalco about A$130
million.
Powell said, though, that ''the market by itself without
Comalco'' is big enough for the pipeline to go ahead.
The Queensland government is also likely to be a major
source of demand for the gas, through its power utilities.
Stanwell expects to use 16 petajoules of gas a year for
the first phase of a planned gas-fired power plant. It plans
eventually to double the 400 megawatt size of the plant, at
Townsville, on the north Queensland coast.
Oil Search said in January it is negotiating to sell as
much as 35 petajoules of gas a year to Energex Ltd., a gas and
electricity retailer also owned by the government. This would
probably require the pipeline to be extended south from
Gladstone to the state capital, Brisbane. |
