SOME of the world’s biggest names in oil and gas are already in PNG as they seek a firm foothold in the next frontier.
The presence of multinational oil and gas companies presents a once-in-a-lifetime opportunity for Papua New Guinea to capitalise on this resource to help build the nation, but only if the government gets its policy settings right.
RISC estimates that if PNG can learn from some of the mistakes Australia made in developing its own resource, it could save over US$5 billion over the next 20 years.
Perhaps the most disappointing aspect of the LNG boom in Australia was the lack of any meaningful collaboration between the projects until after they had been built.
Over US$220 billion has been invested in these projects and RISC estimates that poor decision making and duplication of infrastructure cost the industry over US$30 billion in the downstream sector alone.
This excludes synergies in the development, logistics and operations in the upstream portions of these projects.
History has shown that hubris and corporate ego played a bigger a role in decisions than economic rationalism.
The stakeholders who lost out are not only the shareholders of the companies that spent too much. Australian taxpayers are also footing the bill to the tune of at least 42 per cent of Petroleum Resources Rent Tax (PRRT) and company tax foregone.
PNG can avoid these pitfalls by putting policies in place which ensure a rational use and sharing of infrastructure.
RISC estimates that collaboration in the downstream infrastructure between the PNG LNG and Papua LNG projects, could result in savings in excess of US$5 billion over a 20 year period.
There are also other upstream synergies such as logistics and supply, operations and capacity management which could have a similar material a value in the long term.
Collaboration will be easier if Oil Search’s takeover of Interoil is successful, but a clear government strategy and policy will help.
However the opportunity does not stop there. There are substantial additional gas resources which may remain stranded unless infrastructure is put in place (See Map above). Often, only governments can take the long term view to ensure this.
Infrastructure which could be vital is:
- A pipeline from the Western provinces of PNG, which could connect substantial and already discovered resources to other existing or planned pipelines and help unlock the exploration potential of the area.
- Construction of industrial estates located near major ports and existing and planned LNG infrastructure that facilitate value-adding gas using industries such as mineral processing, fertiliser, ammonia, methanol or other petrochemicals.
PNG has proven it can develop a world scale, cost competitive gas resource, though it’s early days yet. To date less than 20 per cent of the discovered gas in PNG has been developed through the PNG LNG project.
In RISC’s view, strong leadership is needed to ensure that a strategic vision is identified and the right policies put in place.
The strategic vision should ensure that the exploitation of the nation’s oil and gas resources adds as much value as possible to the stakeholders; the nation, communities, the project proponents and the end users of the resources.
An important part of this vision is to ensure that a long term view is taken when it comes to utilising gas production and processing infrastructure.
Forty years ago the government of Western Australia agreed to underwrite the construction of a 1,530 kilometre gas pipeline from the North West Shelf to markets in the south west of the state.
This infrastructure has underpinned the growth of industry and has proven to be a wise and far reaching investment.
After being commissioned in 1984, it was privatised in 1998 for A$2.4 billion – more than twice its original cost. Not a bad return on the investment.
PNG would do well to look at this model for unlocking its resource potential.
Will we look back in 20 years’ time and judge if PNG got it right? Only time will tell.
The opportunity is there, but now is the time for leadership and strategic vision.