Wednesday, February 8, 2012
Kogas, Japan Companies Eye Papua New Guinea LNG
In the race for Papua New Guinea’s gas riches, there’s been a notable absentee up to now: Korea Gas, the world’s top importer of liquefied natural gas by volume.
Not any longer.
Korea Gas, known as Kogas, is stitching together a consortium involving Mitsui and Japan Petroleum Exploration that aims to join InterOil’s proposed gas-export project in Papua New Guinea as a strategic partner, a person familiar with the matter told Deal Journal Australia.
InterOil said Sept. 30 it had mandated Macquarie Capital, Morgan Stanley and UBS to bring in a company with experience in operating large liquefied natural gas, or LNG, production facilities.
On offer is an equity stake in the US$6 billion plant that will convert natural gas to a liquid for export as well as associated infrastructure in Gulf province. InterOil says it is also willing to sell interests in the Elk and Antelope gas discoveries, along with exploration tenements in Papua New Guinea.
“The considerable strengthening of the Asian LNG market, the increased interest in exploration and investment in Papua New Guinea, as well as the company’s reservoir analysis and project design fundamentals lead the company to believe that now is an attractive time to seek a partner,” InterOil said at the time.
Papua New Guinea has an estimated 22.6 trillion cubic feet of natural gas reserves, according to U.K.-based consultancy Wood Mackenzie, but little new local demand for the clean-burning fuel is expected beyond mining developments such as Xstrata’s Frieda River copper-gold project and greater use by households.
That’s created an opportunity for some of the world’s biggest energy companies to invest in developing the gas reserves for export as LNG. Papua New Guinea is poised to join the ranks of LNG exporters in 2014 when the ExxonMobil-led US$15.7 billion PNG LNG project is slated to start up.
InterOil, which is listed on the New York Stock Exchange, is proposing to build a minimum 7.6 million-ton-a-year LNG plant fed by the Elk and Antelope fields. Once construction starts, it typically takes around 4-5 years before a facility is able to chill its first gas for export as LNG.
The person said Korean and Japanese companies initially planned to compete separately to join the InterOil project, but changed tack to work together partly to avoid bidding up the price.
InterOil’s advisers asked for bids to be lodged by early December 2011, but this was extended by a couple of months, the person said.
Kogas is more interested in operating the LNG plant, while Mitsui and Japan Petroleum Exploration–better known as Japex–are focused on securing interests in gas fields and associated liquids such as condensate, a type of light oil, the person said.
Kogas would likely then select a Korean engineering company to build the plant, giving it an opportunity to learn the technology, the person added.
In an interview with Dow Jones Newswires last year, Kogas president and chief executive Choo Kang-soo named Papua New Guinea among four countries that it was targeting for a major natural-gas field development in the near term. The other countries were the U.S., China and Venezuela.
Kogas imported nearly 34 million tons of LNG last year–equivalent to nearly triple the LNG volumes shipped into neighboring China.
InterOil isn’t alone in hunting for a partner to help develop gas reserves in Papua New Guinea.
Deal Journal Australia reported in December that Canada’s Talisman Energy has appointed Sydney-based advisory RFC Corporate Finance to find an investor for four licenses in the forelands of western Papua New Guinea, which contain a mix of gas discoveries and exploration targets. The company reckons it can aggregate between 2 trillion and 4 trillion cubic feet of gas in Papua New Guinea–enough to underpin a single unit producing LNG for export.
ASX-listed Oil Search also opened a data room on its offshore gas fields in the Gulf of Papua in the final quarter of 2011, and has already held preliminary talks with international companies with LNG expertise.
“More detailed discussions and active engagement with a number of well qualified parties will occur in the first quarter of 2012, with a view to a farm-down of our large Gulf area interests in due course,” Oil Search’s Managing Director Peter Botten said in a statement Jan. 24.
However, potential new investors in Papua New Guinea need a strong appetite for risk.
Last month, political tensions flared when a former colonel mutinied and detained the head of the armed forces, seeking to restore former Prime Minister Michael Somare to power. The mutiny was quickly suppressed by forces loyal to current PM Peter O’Neill, who took office when Somare was out of the country due to illness last year.
“These developments have increased the risks of the country losing donor support and much needed investments, in our view,” Standard & Poor’s said in a Jan. 27 note as it cut the outlook on PNG’s long-term sovereign credit rating to negative from stable.
This article was first published by the Wall Street Journal
at 9:10 AM