(Bloomberg) -- International energy giants are aiming to reach an agreement with the government of Papua New Guinea by March for their plan to nearly double the Pacific nation’s gas export capacity.
Exxon Mobil Corp., Total SA, and Oil Search Ltd. entered into a memorandum of understanding with the government that sets a broad framework for a final deal, with the details remaining to be worked out over the next few months, Oil Search said in a statement Friday. The framework creates an “equitable split” of proceeds from the project between the government and the developers, including reserving some natural gas for domestic use, Oil Search Managing Director Peter Botten said in a Bloomberg TV interview.
“I’m hopeful that with the support of the government that we can come to an agreement on terms soon and together move forward on a new chapter in PNG’s energy story,” Neil Chapman, a senior vice president at Exxon, said Friday at the Asia-Pacific Economic Cooperation summit in Port Moresby. “There’s no question about the appetite for LNG throughout the Asia-Pacific. The market for increased production is out there.”
Earlier this year, the companies agreed to the outlines of a plan to develop new fields and build three new 2.7 million-tons-per-year liquefaction units, raising the nation’s annual exporting capacity to about 16 million metric tons.
Under the concept, one of the processing units, or trains, would be supplied partly by gas from Exxon-operated assets that feed the existing PNG LNG project. Two additional trains would be fed from the Elk-Antelope gas fields, which are part of the separate Total-led project called Papua LNG. Exxon and Oil Search own stakes in all of those assets.
The MoU announced Friday is between the Papua LNG venture and the government. The companies plan to begin the next key step -- front-end engineering and design -- on their combined expansion project after all agreements with the government are finalized, expected around March. They had said earlier aimed to begin that phase by the end of this year.
The Exxon-led PNG LNG development, which started operating in 2014, produces from wells in the forested mountains known as the Highlands, sending the gas 700 kilometers (435 miles) southeast via pipeline to a processing plant on the shores of Caution Bay, near the capital Port Moresby. The gas is super-chilled to liquid and loaded onto special tankers for export. Originally designed to produce a maximum of 6.9 million tons a year, the plant shipped more than 8.2 million in 2017.
The companies have been negotiating with Papua New Guinea for months over what portion of the expansion’s revenue will go to the government and local land-owners. An International Monetary Fund analysis showed that the deal signed a decade ago for PNG LNG, which granted Exxon generous rights to recover certain costs before paying taxes or fees, has returned “quite limited benefits” for the country.
Expanding capacity by sharing infrastructure would cost $12 billion to $13 billion, about $3 billion less than building two separate projects, Oil Search has said. It would lift total annual exports from Papua New Guinea to about 16 million tons by 2023, putting output on a par with either of Australia’s two largest projects: the Woodside Petroleum Ltd.-operated North West Shelf LNG plant and Chevron Corp.’s Gorgon project.
--With assistance from James Thornhill and Adrian Leung.
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