Papua New Guinea Explores Potential of Petrochemical and LNG Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--Exploration and production firm Oil Search Limited (ASX:OSH) (Port Moresby, Papua New Guinea), has signed a memorandum of understanding with the government of Papua New Guinea, Mitsubishi Gas Chemical Company Incorporated (TYO:4182) (Chiyoda, Tokyo) and Itochu Australia Limited, a wholly owned subsidiary of Itochu Corporation (OTC:ITOCY) (Minato, Tokyo), to update a study on the viability of developing a petrochemical project in Papua New Guinea. Based on the current economic scenario, the companies will study the feasibility of such a project and forecast the benefits of developing a petrochemical industry in the country. The study will enable Oil Search to understand of all the commercial options available in Papua New Guinea for petrochemicals, liquefied-natural-gas (LNG) trains and their export possibilities.

Oil Search operates all of the country's oil and gas fields. In July, the company signed a domestic memorandum with the government to build a range of domestic gas initiatives with the gas resources that are not already dedicated to the Port Moresby LNG project. The $11 billion, 6.3 million-ton-per-year LNG-liquefaction project is being led by the ExxonMobil Corporation (NYSE:XOM) (Irving, Texas) in a joint venture with Oil Search, Nippon Oil Corporation (TYO:5001) (Minato), Santos Limited (NASDAQ:STOSY) (Adelaide, South Australia), AGL Energy Limited (ASX:AGK) (Sydney, New South Wales), and the state-run Mineral Resources Development Company Limited (Port Moresby).

Oil Search has a 34% stake in the project, which would need 10 trillion-12 trillion cubic feet of gas over a proposed life of 20-30 years. About 60% of Oil Search's gas resources are committed to this two-train facility. The main products of the facility will be LNG, liquefied petroleum gas (LPG) and condensate, with Asia being the target market. The gas for the project is scheduled to be procured from the newly discovered Angore, Hides and Juha gas fields in addition to gas from the Agogo, Gobe, Kutubu and Moran fields. The fields are estimated to have 9 trillion cubic feet of gas. If more gas is discovered, as has been estimated, the facility might require a third train to transport the gas. The project is currently in the design and engineering phase and is scheduled to be complete by 2013-14.

The progress of the Papua New Guinea LNG project is being closely observed by all quarters, as its completion will mark a major milestone in the country's petrochemical sector. It will indicate the feasibility of setting up other large-scale projects in the country. The road map being followed by the joint venture will act as a blueprint for other potential industry leaders willing to invest in the country.

In September, Sasol Petroleum International, a unit of Sasol Limited (NYSE:SSL) (Johannesburg), acquired a 51% working interest in four hydrocarbon prospecting licenses. The licenses cover an area of 37,000 square kilometers and are near already established gas fields in Papua New Guinea. Sasol Petroleum Papua New Guinea, the newly formed company, will carry out the exploration work in the four blocks. Another partner in the venture is the exploration company Papua Petroleum.

In October, the government signed a long-term partnership agreement with Italian multinational oil and gas company Eni S.p.A (NYSE:E) (Rome, Italy) to develop Papua New Guinea's hydrocarbon resources and to possibly set up four LNG plants. Eni will carry out an exhaustive exploration study and carve out a data acquisition framework for the unlicensed or unexplored areas within the country. This will allow for determining the potential of the remaining hydrocarbons. Eni has also indicated an interest in exploring the possibilities of developing oil and gas projects in collaboration with local communities. The agreement also details plans to promote social projects related to power generation and the development and use of alternative energy forms.

More recently, Horizon Oil Limited (ASX:HZN) (Sydney) announced the discovery of gas reserve condensates in the western province of Papua New Guinea. The better-than-anticipated gas reserve and the higher hydrocarbon liquid content of the gas have enabled the company to design a gas recycling/condensate stripping development project. Icon Engineering Pty Limited (West Perth, Western Australia) has been retained to provide basis of design (BOD) to develop the resource. The BOD involves the production of 140 million cubic feet of gas per day from two wells, more than 4,000 barrels of condensate per day, and about 40 tons of LPG per day. The dry gas would be reinjected until a market for gas develops.

The availability of large quantities of hydrocarbons within Papua New Guinea has been a known fact for many years but only now, with the development of LNG and the long-term prospects of the Asian market, has the production of the resource become economically viable. ExxonMobil, Oil Search and Interoil Corporation (TSX:IOL) (Port Moresby) have discovered more than 20 trillion cubic feet of natural gas so far. LNG Energy Limited (Vancouver, British Columbia) is currently exploring the Papuan Basin and the North New Guinea Basin. The company has estimated the Kuru reservoir to have gas reserves ranging from 77.8 billion cubic feet of gas in place to 227 billion cubic feet of gas in place.

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