"We declare our first goal to be for every person to be dynamically involved in the process of freeing himself or herself from every form of domination or oppression so that each man or woman will have the opportunity to develop as a whole person in relationship with others".
- Papua New Guinea National Goals and Directive Principles
Tuesday, 4 November 2014
By Christine Forster | November 4, 2014 12:01 AM It seems there might still be some twists and turns in the long saga of InterOil’s Papua New Guinea LNG project, with analysts speculating that arbitration proceedings launched by Oil Search are ultimately aimed at replacing joint venture partner Total with ExxonMobil. Oil Search clearly sees itself as the key player in the Pacific nation’s emerging gas sector, by virtue of its 29% stake in the new ExxonMobil-led PNG LNG facility near Port Moresby and its significant equity position in the InterOil project. Oil Search, with its strong operating history at PNG oil and gas fields, also enjoys a good relationship with the PNG government, one of its major shareholders. ExxonMobil’s $19 billion PNG LNG project started ahead of schedule in April. The foundation development comprises two LNG production trains with total capacity of 6.9 million mt/year, fed by a gas pipeline from the Hides and other fields in PNG’s Highlands. Separately, InterOil’s LNG project is based on gas discovered in the Elk-Antelope fields, covered by the PRL 15 permit in PNG’s Gulf province. The project has gone through several iterations over the past six years as InterOil, under previous management, sought to bed down a development plan that would meet criteria set out by the PNG government. A key requirement was that there be a proven LNG producer on board. As part of that process, InterOil in 2013 held several months of exclusive but ultimately unsuccessful negotiations with ExxonMobil over the use of Elk-Antelope gas to underpin an expansion train at the operating PNG LNG project. Shell was also involved in the talks. But Total eventually emerged with the prize, unveiling a deal in December 2013 to acquire a 61.3% stake in PRL 15, subject to several conditions including the acquisition of the minority interests in the permit. That agreement, however, was superseded in February this year when PNG-based Oil Search swooped in on a 22.8% stake in the permit by buying out Pacific LNG Group for $900 million plus contingency payments. In late March, InterOil announced a revised deal under which Total purchased a 40.1% stake in PRL 15 for $401 million down, plus $73 million when a final investment decision is taken on the Elk-Antelope LNG project, and $65 million when the first LNG cargo is shipped. Under the terms of the transaction, Total will make additional payments depending on the eventual size of the certified gas resource, scaling from $1.6 billion at 7.2 Tcf up to $3.5 billion if it’s as big as 11.8 Tcf. Oil Search has challenged the Total buy-in, claiming that its own purchase of Pacific LNG Group’s interest vested it with pre-emptive rights in the joint venture. Both InterOil and Oil Search are claiming confidence that they will prevail in the dispute, set to go to the London Court of International Arbitration for a ruling in late November. A decision is expected during the first quarter of 2015. Hong Kong-based analysts with Bernstein Research, which previously dubbed Oil Search’s purchase of the stake in Elk-Antelope an “inspired move,” are now suggesting the arbitration is designed at opening the door for ExxonMobil. “In our view the arbitration is aimed at replacing Total with ExxonMobil to achieve a more timely and efficient development of Elk-Antelope,” they said in a recent note. Whatever the outcome, cooperation with ExxonMobil is clearly on Oil Search’s agenda as it strives for final investment decisions on expansion at PNG LNG and the development of Elk-Antelope by the end of 2016. While InterOil is planning appraisal drilling at Elk-Antelope, the PNG LNG partners are working to firm up the P’nyang and Hides Deep gas resources as potential supplies for an expansion train at their project. According to Oil Search, around $3 billion of potential capital cost savings and about two years production acceleration could be achieved through coordinated development of PNG’s undeveloped resources. Oil Search Managing Director Peter Botten said it was “more challenging” to achieve an FID on a stand-alone Elk-Antelope project in the projected 2016 time frame. “That’s one of the reasons why we are encouraging cooperation between the joint ventures,” he told journalists last month. According to Botten, cooperation could range anywhere between the development of a second entirely stand-alone project at Elk-Antelope, to a completely integrated development with PNG LNG. Either way, he has forecast that Oil Search is likely to be participating in a total of five LNG trains in PNG by the early 2020s. For its part, however, InterOil appears to be firmly focused on a stand-alone development at Elk-Antelope. In its latest briefing for analysts it reiterated it was planning to develop its Elk-Antelope gas as PNG’s second major LNG project. InterOil cited analyst estimates putting the potential cost of an Elk-Antelope development at $2,051/mt of LNG capacity, compared with the $2,324/mt cost of the PNG LNG project. Bernstein agreed that Elk-Antelope was expected to be significantly lower in cost than PNG LNG on the basis that it would not require an airport in PNG’s Highlands or inter-field infrastructure. In addition, the pipeline would be 50% shorter and over a considerably easier route, and the project could take advantage of synergies from being built on a brownfield LNG site. But the Bernstein analysts added: “Given the likelihood of a two-train development at Elk-Antelope and the capacity of PNG LNG to accommodate only three trains, the synergies with Elk-Antelope on cost and schedule could be overstated.”
Monday, 3 November 2014
Originally aired on Dateline Pacific, Tuesday 28 October 2014 An Australian academic says Papua New Guinea's latest monetary policy statement contains some worrying signs that the country could be heading down a slippery slope. TRANSCRIPT An Australian academic says Papua New Guinea's latest monetary policy statement contains some worrying signs the country could be heading down a slippery slope. Paul Flanagan, a visiting fellow at the Australian National University, says a bond agreement to fund a large government deficit effectively amounts to printing money which could lead to hyperinflation. He also says the government is pegging its fortunes too much on the LNG gas project. Mr Flanagan told Jamie Tahana next month's budget will be critical. PAUL FLANAGAN: The devil really seems to be in the detail and even in some things that seem to be a good news story are actually starting down potentially a very slippery slope that may damage PNG's long-term development. JAMIE TAHANA: What kind of things in particular? PF: The announcement was that the Treasury, the PNG Treasury, and the Bank of Papua New Guinea would cooperate in a way that sounded very positive. And this was that if the PNG Treasury was having difficulty in raising the finance from the private sector to fund the very significant budget deficit in PNG at the moment, then the Bank of PNG would buy up those Treasury bonds and would then sell them on to the PNG public. And while this sounds like a good idea for cooperation in reality it is essentially printing money and this is because it seems as if the Bank of PNG is having to purchase, then it is hard to get detailed information, but it could be up to on occasions in some weeks 100 million kina, these bonds. But they're only able to sell 1 million kina of these bonds to the PNG public and that means the other 99 million kina has to be printed. JT: So nobody is buying them, basically? PF: That's right. Rather than dealing and trying to reduce the deficit, or going and looking for raising those funds in international markets, the step seems to have been going down this very worrying path of printing money. It's a worrying path because printing money leads to inflation and if it continues there is a risk of hyperinflation. And hyperinflation can be devastating for development and the economy and especially damaging for the poor. JT: How at risk is PNG of hyperinflation? PF: These are just very, very early days. And it's only a couple of recent developments that have started raising some very early warning bells. So one of those is indications that essentially money will start being printed to fund the deficit, the second one was an intervention in the exchange rate where it looks as if the kina has moved away from a market-related exchange rate system and certainly local businesses are talking about growing amounts of exchange rate rationing so local businesses can't get the funds to be able to pay for the imports they need for their businesses. But it's only a few months on - a critical thing is the budget that will be handed down in November and if that keeps to the medium-term fiscal strategy of reducing the budget deficit from around 7 percent back down to 2.5 percent then hopefully the private markets will be able to fund that and this current risk that I am talking about will hopefully be a very very short-lived experiment. JT: The LNG project that has been touted many times as a great hope - as a way to address the deficit - to increase spending on things like healthcare, education and staff. But we have seen recently it has been very slow to get off the ground. Do you think hopes are being pegged too much on the LNG project being the great bringer of success for PNG? PF: This is something that confuses me in part because the PNG treasury has over the last two years been producing graphs that indicate that PNG LNG revenue is vital but it is vital because it distinctly replaces declining revenues from the OK Tedi mine and the Kutubu oilfield. So PNG needs this money but it is only in line with the revenues and the share of the GDP that they have been getting previously. So this is important money but it is not a huge goldmine that allows the government to do everything that it would like to do. There will still be some tough choices in this budget and there's a tough road of development for a long time still.
Tuesday, 21 October 2014
Japan's imports of LNG remained at a near-record average of 11.85 billion ft3/d in the first eight months of 2014, according to recently released trade statistics from Japan's Ministry of Finance. Increased LNG imports are occurring amid continued shutdowns of nuclear power plants following the Fukushima meltdown and subsequent increased use of fossil fuels in power generation. Higher levels of LNG imports in 2014 are underpinned by continuous growth in gas-fired power generation, the ready availability of spot LNG supply because of weak demand in Europe and Asia (particularly in South Korea) and lower short-term prices. Higher consumption of fossil fuels for power generation following the nuclear meltdown contributed to already high energy costs and led to record trade deficits. Japanese utilities have been reducing the share of crude oil and heavy fuel oil in the power generation mix, while increasing coal consumption with the start-up of new coal-fired plants. In 2013, coal consumption for power generation increased by 16% over 2012, and reached a record 40 million t in the first eight months of 2014. LNG consumption also remains at near-record levels, supported by more than 2.5 GW of new gas-fired power generating capacity commissioned in 2014 and a growing demand in the industrial sector driven by oil-to-gas substitution. At present, all of Japan's 48 nuclear reactors (which generated 34% of the country's power in 2010) remain offline, and the timeline for their restart remains uncertain. Last month, Japan's Nuclear Regulatory Authority approved a safety report of two reactors – Kyushu Electric Power Company's Sendai reactors No. 1 and 2 – bringing them a step closer to a restart in the next few months. However, strict safety standards for nuclear plant restarts combined with strong public opposition to nuclear power may delay the restarts of the plants. Since 2012, the increase in Japan's LNG consumption has averaged around 2.3 billion ft3/d compared with 2010. That increase is nearly equal to the total LNG import volume of the world's third-largest LNG importer, China, which imported 2.5 billion ft3/d in 2013. The incremental supply to accommodate Japan's increase was diverted primarily from Europe, where LNG consumption declined by 4.1 billion ft3/d (48%) in 2013 compared with 2010. Increased use of existing liquefaction capacity, particularly in Qatar and Australia, also contributed to the incremental supply. Additionally, the commissioning of the Papua New Guinea liquefaction plant in May, which coincided with lower demand in Europe, contributed to more spot supply available to Asian buyers. In South Korea, warmer-than-average winter temperatures and near-full storage levels going into summer prompted the Korean Gas Corporation to seek buyers or swap partners for 20 - 40 cargos to manage lower-than-expected demand. Reduced competition from South Korea increased supply and reduced prices in Asia Pacific markets. These factors contributed to lower average LNG import prices in Japan in the second half of the year, and were coupled with higher LNG import volumes. Japan's spot LNG prices averaged US$ 13.77/million Btu in June-August and declined to US$ 11.30/million Btu in September. While Japanese spot prices have been trending lower in the second half of 2014, they still remain significantly above natural gas prices in other regions
Tuesday, 7 October 2014
5:38 am 08/10/2014 Papua New Guinea's Prime Minister has welcomed the commitment of the French company, Total to advancing the Elk-Antelope Liquefied Natural Gas project in Papua New Guinea. Peter O'Neill has received an update on the company's national engagement from Total's visiting Vice-President Arnaud Breavillac and fellow Total executives during their visit to PNG this week. The recent revised agreement between InterOil and Total paves the way for Total to bring its LNG expertise to develop PNG's second LNG project. Mr O'Neill says progress on Elk-Antelope gas fields in the East Papuan Basin is being made and Total is committed to working with the government, joint venture partners and stakeholders. Subject to continued feasibility studies, the project is expected to further establish PNG as a major gas energy hub. Total has described the PNG interest as a significant project in its global portfolio and an ideal opportunity to grow its business in the Asia-Pacific region. Total is the fifth-largest publicly-traded integrated international oil and gas company in the world. Joint venture partners for the Elk-Antelope LNG project are Total, InterOil, Oil Search and the Government of PNG.
Monday, 6 October 2014
October 1, 2014 David Lennox What's new? An announcement by Santos in April heralded the start of production at its Papua New Guinea Liquid Natural Gas facility (PNG LNG). The first commercial cargo of LNG was shipped to Japan in May. PNG LNG cost $US19 billion ($21.5 billion) to develop, with completion reached within a revised budget and ahead of schedule. Santos holds a 13.5 per cent interest in PNG LNG. Other participants include Oil Search with 29 per cent, ExxonMobil with 33.2 per cent, the PNG government with 16.8 per cent and others at 7.5 per cent. The PNG LNG facility is the processing hub for the Southern Highlands that now host oil and natural gas fields. The first oil field was discovered in 1992, and has since grown to some seven producing fields with numerous prospects still being developed and explored. The PNG LNG facility will produce some 9 trillion cubic feet of natural gas and 200 million barrels of liquids over an expected 30-year life. Annually, PNG LNG will produce about 6.9 million tonnes of LNG in its current two processing train configuration. Santos' Peluang gas field in East Java, in which it has a 67.5 per cent interest, also came on stream in March. The field is expected to produce around gross 25 million standard cubic feet of natural gas at its peak per day. The two start-up events had an immediate impact on Santos, with average daily production on a barrel of oil equivalent per day (boepd) basis surging to an average 164,000 for July, up from the 141,000 boepd average for the June quarter 2014. Outlook Production will surge through 2015, as new production from PNG LNG and Peluang are incorporated into the reported operational volumes. The better volumes will provide Santos with some revenue protection in what could be a volatile oil and natural gas pricing environment. Certainly, the reduction in capital costs to build PNG LNG and the replacement of the cash outflow with revenue should have a positive impact on Santos's financial performance, including strengthening an already impressive balance sheet. The benefits flowing from PNG LNG should end the 30¢ dividend plateau, with the company flagging its intention regarding dividends. The 2014 interim dividend was increased by 5¢ to 20¢, the first rise in three years. While PNG LNG will have an impact on 2015, Santos will in 2016 experience a replication of 2015, as its Gladstone LNG (GLNG) project moves into production. Santos holds a 30 per cent interest in the GLNG project. Santos remains on track to achieve 2014 production guidance of 52 million to 57 million boe. Price Over the past 12 months, during which time Santos has been building two LNG projects, its share price has traded in a broad sideways channel. Support though has been found at $13.20 and resistance at $15.25. Global events concerning the environment, and a growing sea change in energy usage toward natural gas is generating significant investor interest in Santos, with its natural gas exposure. Add PNG LNG now in production and GLNG coming on stream in 2015, and the financial benefits generated by these two projects; a challenge on the $15.25 resistance could be expected in the months ahead. Worth buying? Santos appears to be well positioned to participate in Asia's growing energy requirements now and in the years ahead. With its pipeline of long-life energy assets in Asian, Santos is in an enviable position to meet this increasing demand. While Santos' long-life assets also have the capability to deliver energy into Asia over the medium to long term.
Sunday, 5 October 2014
The remote location of key upstream area facilities and the limited road system in the PNG Highlands provided a logistical challenge for engineers who needed to transport large and delicate equipment for construction of ExxonMobil’s Hides Gas Conditioning Plant (HGCP). Following extensive evaluation by ExxonMobil and the PNG LNG Project partners, the solution was to build an airfield capable of handling the huge Antonov aircraft needed to transport specialised equipment that was either too large or too sensitive to be transported by road. Construction of the Komo Airfield began in 2010, with McConnell Dowell and Consolidated Contractors Company joint venture (MCJV) awarded the contract. The airfield site is located approximately 10 km south-east of the HGCP in the Hela Province of the Papua New Guinea Highlands. Constructed to accommodate the world’s largest commercial aircraft, the Antonov AN-124, the Komo Airfield infrastructure includes a 3.2 km runway with facilities including taxiways, a terminal, fuel storage facilities and radio and navigation equipment. A major logistics challenge faced the crews working to construct the airfield. The only approach to site was via an 800 km highway that required significant road and bridge upgrades in parts. With no facilities at the site of the airfield, a pioneer camp had to be established for the workforce so that site construction activities could commence. The project scope required close to 9 million m3 of earthworks, major crushed rock and asphalt pavement construction, building and facilities work, and two new bridges designed for heavy load transport on the road between the HGCP and the Komo Airfield. From the outset, ExxonMobil, the operator of the PNG LNG Project, realised that strong relationships would be key to the success of the Project. As well as developing an extensive Land and Community Affairs team and managing thousands of community meetings, ExxonMobil encouraged its contractors to also reach out to the communities around their specific sites. At Komo, ExxonMobil and MCJV established a Community Issues Committee (CIC) which enabled different clans and tribes in the area to communicate via open discussions about the project, which helped to bridge the gap between the construction teams and the local community. With the introduction of community projects such as water tanks, medicine supplies and support for the local education system, the local community embraced the ExxonMobil and MCJV teams and crews working in the area, thankful for the support and benefits from the project. The Project also reached out to schools, which included a particular focus on safety awareness. Through initiatives such as the distribution of colouring pages which showed the different types of machinery used on the project, children got a better understanding of the construction equipment and how to be alert and safe within the vicinity of the project. There were also extensive efforts to employ, train and enhance the skills of the local community to work on the Project. The results included many local workers earning an Australian Standard Certificate of Competence. Landowner spokesperson Jack Pawa believes the Project has provided fantastic opportunities for the local communities. “ExxonMobil and MCJV have changed this place basically by employing more local people here. Women, men who have never worked in any part of PNG, now they have been employed, so everyone is benefitting tremendously from the operation here,” Pawa said. After a culmination of years of effort, the first Antonov AN-124, the largest cargo aircraft, achieved successful touchdown on 3 May 2013 ready to offload the first of 88 scheduled runs. The Komo Airfield Project is an example of how a world-class project can be successfully undertaken in remote, inaccessible terrain and leave an ongoing positive legacy for the people and future generations of PNG.
Saturday, 9 August 2014
By Avik Chowdhury - Disclosure • Aug 8, 2014 12:36 pm EDT ExxonMobil’s 2Q14 developments In May, 2014, ExxonMobil (XOM) disclosed that it acquired ~26,000 acres in the Midland Basin that would increase XOM’s capacity to increase oil and gas production. This includes horizontal drilling activity in Wolfcamp and Spraberry in the Permian Basin. Acquires more assets in the Permian XOM acquired the property from Linn Energy (or LINE) in exchange of its interest in the Hugoton gas field in Kansas and Oklahoma. The property’s current production capacity is 2,000 barrels of oil equivalent per day (or Boe/d). XOM also disclosed that with the new acquisition, XOM’s asset base in the Permian now totals 1.5 million acres and in excess of 90,000 net Boe/d. Starts LNG exports In May, 2014, XOM made its first shipment of liquefied natural gas (or LNG) from the PNG LNG project ahead of schedule. XOM’s PNG LNG project is an integrated development that includes gas production and processing facilities in Papua New Guinea PNG LNG is expected to produce ~9 trillion cubic feet of gas in next 30 years. The four major customers for the project’s output are China Petroleum and Chemical Corp.—or Sinopec, Tokyo Electric Power Co. Inc. (or TEPCO), Osaka Gas Co. Ltd., and CPC Corp. Taiwan. New ethane cracker construction In June, 2014, ExxonMobil Chemical Company, a subsidiary of XOM, disclosed that it started constructing an ethane cracker and an associated premium product facility in Texas. The steam cracker will have a capacity of up to 1.5 million tons per year and provide ethylene feedstock for downstream chemical processing. Production is expected to begin in 2017. Discovers gas in Argentina Also during 2Q14, XOM discovered oil and gas in an unconventional shale well in Argentina. The well flowed at an average rate of 770 barrels of oil a day in its first flow test. The well is now subject to further analysis before commercial production begins. Key exchange-traded funds (or ETFs) ExxonMobil (XOM) is a component of the Energy Select Sector SPDR (XLE) and the SPDR S&P 500 (SPY). Royal Dutch Shell (RDS.A) and Chevron Corporation (CVX) operate in the same industry as XOM. CVX is a component of XLE and SPY.
Tuesday, 5 August 2014
ExxonMobil has released its second quarter 2014 financial and operational results. Comments Commenting on the company’s performance, Chairman Rex W. Tillerson said: “ExxonMobil’s financial results were achieved through strong operational performance and portfolio management. We continue to enhance shareholder value by funding capital projects and delivering robust shareholder returns through dividends and share purchases. “Upstream production for the year remains in line with plans and we continue to add volumes from our high-quality development portfolio through assets such as the Papua New Guinea LNG project, which started up ahead of schedule during the quarter. “Second quarter 2014 earnings were US$ 8.8 billion, up 28% from the second quarter of 2013, reflecting strong operations and asset divestments. “Capital and exploration expenditures for the first half of 2014 were US$ 18.2 billion, down 17% from the first half of 2013. “Through the first half of 2014, the Corporation distributed US$ 11.7 billion to shareholders through dividends and share purchases to reduce shares outstanding.” Highlights •ExxonMobil shipped the first cargo of LNG from the PNG LNG project ahead of schedule. PNG LNG is expected to produce more than 9 trillion ft3 of gas over its estimated 30 years of operations. •Offshore Sakhalin Island in Russia, the 42,000 ton topsides of the Berkut platform were installed on the structure at the Arkutun-Dagi field. The platform will be the largest offshore oil and gas production platform in Russia. •Construction started on the ethane cracker at the Baytown, Texas, complex.
Sunday, 3 August 2014
Reuters Jul 29, 2014, 12.19AM IST MILAN: Asian spot liquefied natural gas (LNG) prices edged lower last week as buyers low-balled sellers amid ample supply from Papua New Guinea and Australia, while bets of a winter price pickup spurred some into floating storage plays. Spot LNG prices for September delivery slipped slightly to $10.50 per million British thermal units (mmBtu) last week, compared with $10.60 per mmBtu on the week ended July 18. "I think buyers are bidding around $10 for Sept delivery, perhaps up to $11 for October. So there may still be further downside, or we could have reached the floor," one trader said. As demand stayed thin, India's Gail last week launched a tender to buy up to eight LNG cargoes from Jan-Dec 2015, mainly unloading at its western Dabhol terminal. Given the year-ahead delivery dates, India's demand left spot markets unfazed. However, a three-cargo sell tender by Australia's North West Shelf for September and November loading added to supply-led bearish sentiment. A nose-dive in prices began in late February, accelerated through spring and early summer, and now appears to be bottoming out after notching up a 50 per cent drop. The lows have spurred hopes that the traditional pickup in Asia's winter LNG demand will trigger a substantial price rebound, even if it falls short of last winter levels when spot rates exceeded $20 per mmBtu. As a result, some traders have decided to park LNG on tankers and wait out the slump until prices recover later in winter, riding the fortunes of the seasonal price spread. Trading house Glencore is among those to have bet on a rebounding winter market as parts of multi-month storage play. Traders say it has leased an LNG tanker for the purpose of storing LNG purchased at cut-rate prices, awaiting a price surge once cold weather eats through high Asian inventories. A major European utility with an LNG trading desk has made the leap as well, traders said. Behind recent price drop's is the early startup of ExxonMobil's Papua New Guinea LNG export project, whose long-term supply commitments only kick-in from October, and which took advantage of a seamless commissioning process by pumping out spot cargoes. Those should begin to thin from October as long-term customers exercise offtake rights, though it is not clear if they will need it all. A mild winter that left Asian buyers sitting on full stockpiles, South Korean Kogas' last-minute scramble to deflect unwanted cargoes, and a spree of sell tenders from Indonesia to Qatar and Australia has made this a buyer's summer.
Saturday, 2 August 2014
Oil Search announced that as part of the PNG LNG project, ExxonMobil is drilling nine development wells on the Hides field at the Papua New Guinea site. Six wells (two each from Wellpads B, C and D) have been completed, while drilling is ongoing on two wells at Wellpad G and on the produced water disposal (PWD) well. The first of the two Wellpad G development wells has now reached total depth. The well encountered the gas-bearing Toro reservoir and will be completed as a producer, as planned. PNG LNG project The PNG LNG Project is a 6.9 million tpa integrated LNG project operated by ExxonMobil PNG. The gas will be sourced from the Hides, Angore and Juha gas fields and from associated gas in the Kutubu, Agogo, Moran and Gobe Main oil fields. Adapted from press release by Katie Woodward Published on 23/06/2014
Conventional wisdom says that liquefied natural gas (LNG) is a “can’t lose” proposition. After all, natural gas is plentiful. And liquefying it for transport – to countries that are willing to pay through the nose for it – seems like a no-brainer. Everyone wants in on the game, too. When I spoke about natural gas at a conference in Vancouver recently, those at the event showed a level of interest in LNG that bordered on obsession. If you’ve been following the story as closely as I have, however, you know that LNG’s prospects aren’t nearly as rosy as everyone thinks. Here’s why. The Tightrope Walk of Doom During the most recent winter season in Asia, LNG prices topped $20 per million British thermal units (mmbtu), causing suppliers to salivate at the prospects for the rest of the year. Fast forward to today, though, and prices have sunk to $10 per mmbtu. That’s a 50% haircut, thanks to slack demand during the summer and new facilities coming on line. Now traders are parking LNG on tankers, sitting idle at ports in the hope of a rebound in prices. What U.S. investors are failing to realize is that LNG is already up and running in the rest of the world – and pricing trends are pointing lower over time, not higher. Granted, weather events can boost prices. As evidenced by the 50% drop in prices during the summer season, however, weather can send LNG prices crashing just as easily. Making matters worse, the trend is towards more LNG production in the coming years, not less. Exxon Mobil (XOM), for instance, just started up a new LNG facility in Papua, New Guinea – which will further add to supply. And if one weather event can cause a near 50% drop in prices, an oversupply situation could seriously dent profits in the future. Especially with LNG’s major buyers beginning to bow out… Will Prices Take Another Hit? South Korea and Japan are two major Asian buyers of LNG. Yet their LNG addiction is waning… Consider, South Korea stockpiled LNG while its nuclear plants were offline as a result of a safety scandal. The country has since restarted the nuclear plants, though, which reduces demand for LNG. Japan has been the primary driver of the demand for LNG since the Fukushima disaster shut down its nuclear facilities. Yet it has also brought many reactors back on line, and a cooler-than-expected summer has led to less demand, as well. As a result, many LNG traders are being hit with losses. LNG contracts are usually at fixed prices for the majority of supply, about 80% in most cases. But the remaining 20% is bought and sold by these countries on the spot market – and that’s what determines day-to-day prices for traders and those wishing to buy on the open market. It’s the spot market that should really worry investors in LNG companies. The thinking that LNG is somehow less vulnerable to price shocks than any other commodity is misplaced, and uncertainty will be part and parcel of this “new” market, as well. Now, much like the dry natural gas sector, there will be little in the way of supply shortages as many new facilities come on line in the next few years. So the key will be to focus on producers, which are able to lock up long-term supply contracts at higher prices. For now, companies that have already secured (and are delivering) the product, some of which was locked in at higher prices from last year, are in the driver’s seat. British Petroleum (BP) is one such company. Bottom line: The future issues may not lie on the supply side for LNG, which is where most of the attention is focused, but on the demand side. That may have been overstated, and the recent price move is a good indication that this business is far from a slam dunk. And “the chase” continues, Karim Rahemtulla
Thursday, 8 May 2014
by Jemima Garrett Updated Thu 8 May 2014, 10:12am AEST Photo: ExxonMobil's LNG plant in PNG's Southern Highlands is expected to begin its first delivery of gas in June 2014. (ExxonMobil PNG) Audio: PNG gas landowners won't be identified before first cargo says Minister (ABC News) Map: Papua New Guinea The PNG Government says it's confident its method of identifying landowners who will benefit from the nation's billion-dollar liquid natural gas project is fair and valid. The government has been criticised for using a process called 'clan-vetting' to decide who can claim royalties from the $19 billion project. It has acknowledged that the landowner identification process won't be finished before ExxonMobil makes its first shipment of gas to Asia in the middle of the year. PNG's Petroleum and Energy Minister, Nixon Duban, says clan-vetting is thorough and almost complete in nine of the 16 major areas. "While many people may raise the level of criticism against the government's effort I want to assure all our public and general listeners (about) this system of social mapping and clan-vetting," he said. "I think we are a capable government and we will have it completed without any bias to our current delays in terms of release of funding and the commitment by our officers, are minor obstacles in my view and it will be done." The ExxonMobil PNG LNG project - which stretches from the PNG highlands, along a 600-kilometre pipeline to the plant site near Port Moresby - is ahead of schedule. Tens of thousands of people who live within the project area are waiting for the money to flow but that can't happen until all landowners are identified. Traditional owners in all those areas are expecting to receive financial benefits, but the task of identifying who is or isn't a real landowner is fraught with difficulty. More than five years' work has gone into the process, but it is still contested. Stanley Mamu, administrator of the NGO, PNG LNG Watch, says there are problems with clan-vetting. "Anybody from Papua New Guinea can claim their clan as part of project areas, (that) they come from the project areas," he said. "The problem that will cause for the future is that is not a proper identifying of that clan so anybody working with the Department of Petroleum and Energy can put his clan into that clan-vetting and claim that he is the landowner and he will get benefits from that project." Lawyer Alfred Kaiabe, an oil and gas expert from Hela province, in the PNG highlands, says the clan-vetting system has no legal basis. "There are a lot of problems associated with it," he said. "During the last two weeks there have been commotion down at the Petroleum and Energy Department because some of the landowners want to know the outcome of the clan-vetting the government has been conducting." Royalty money held in trust The final, official list landowners who will benefit from the project will be contained in a ministerial determination. Mr Duban says it is important the information that goes into the ministerial determination is correct. "We must ensure and there must be internal reviews from time to time to ensure that this clan-vetting is true and true and correct in all forms," he said. Mr Duban said he expected the clan-vetting to be 90 per cent finished before the end of the year. Until then, the PNG Government will hold the money in trust. Prime Minister Peter O'Neill is expected to reveal details of how that process will work when he tours project sites in the coming weeks.
Monday, 14 April 2014
by Zacks Equity Research Published on April 10, 2014 U.S. oil and gas giant ExxonMobil Corporation (XOM - Analyst Report) has announced that its long delayed Papua New Guinea (PNG) liquefied natural gas (LNG) project will start exporting LNG by mid 2014. The PNG LNG project is on track and will commence operations ahead of schedule and below its $19 billion budget. The project has brought online a gas conditioning plant in PNG’s highlands. The gas is drilled at the site and a 292-kilometer (180 miles) onshore pipeline has been placed. The first of the two units at the LNG plant are also ready. First cargoes, which were earlier anticipated by October, are now expected by mid year. By the year end, the project will be fully operational. The project, which has been under construction for the past five years, got continuously delayed due to record wet weather, steep terrain and community issues. These resulted in slowing down of the work and escalated the costs by about 25% from its original budget of $15 billion. The most difficult part was the construction of a high pressure gas pipeline above ground that had to be later covered with 1 meter (3 feet) of dirt to conceal it for safety and security. A spot cargo is likely to be the first shipment rather than PNG LNG’s Japanese, Chinese or Taiwanese customers, who have contracted to take 95% of the LNG plants 6.9 million tons of annual gas production. ExxonMobil and its partners – Oil Search Ltd, Santos Ltd, Japan’s Nippon Oil Corp, the PNG government and local landowners – are planning to expand the plant. The decision regarding where to source the additional gas supply for the expansion is yet to be taken. Preferably, the partners want to take the gas from PNG’s biggest undeveloped fields Elk and Antelope controlled by another PNG company – InterOil Corp – and France's Total SA (TOT - Analyst Report). ExxonMobil carries a Zacks Rank #3 (Hold). Other stocks worth considering in the industry include Range Resources Corporation (RRC - Analyst Report) and Helmerich & Payne, Inc. (HP - Analyst Report), all with a Zacks Rank #1 (Strong Buy).