Papua New Guinea Draws Interest in Energy Projects
Wall Street Journal
Foreign governments are intensifying efforts to win influence in Papua New Guinea, as the impoverished South Pacific nation best known for its jungles and tribal society prepares to become one of the world's newest significant energy producers.
When Julia Gillard lands on Thursday in Port Moresby, the capital, for the first visit by an Australian prime minister in four years, she will be following visits earlier this year by Thai Prime Minister Yingluck Shinawatra and a U.K. government minister. China, too, has made little secret of its desire to secure diplomatic weight in Papua New Guinea, offering nearly $3 billion in loans for infrastructure projects last year and signing a long-term deal to buy a chunk of the country's first exports of natural gas.
Defense and deeper economic ties will top the agenda during Ms. Gillard's visit. Australian officials have also been advising their Papua New Guinea counterparts on establishing a new sovereign-wealth fund.
"We're seeing a flurry of visits in recent times. The Thai prime minister doesn't visit just for the hell of it," said Jenny Hayward-Jones of the Lowy Institute for International Policy, a think tank based in Sydney. "We're seeing a lot more economic competition between Chinese business and Australian and other businesses in Papua New Guinea."
The Pacific country has large deposits of natural gas, metals including copper and gold, and valuable fishing rights that have long appealed to foreign investors.
Exxon Mobil Corp. XOM +0.60% has placed the biggest bet on the country's resources sector, leading the development of the $19 billion PNG LNG Project, which is expected to ship its first cargoes of liquefied natural gas to Asian customers such as China Petrochemical Corp., known as Sinopec, next year.
Papua New Guinea has long been a recipient of foreign aid, including from Australia. Little infrastructure exists outside Port Moresby and the hilly, densely forested terrain makes moving around difficult. The country is made up of several thousand separate communities, and has a long-running history of tribal conflict. That lawlessness has been made worse by an influx of guns and other weapons into urban areas.
Port Moresby was rated one of the worst cities in the world, by the Economist Intelligence Unit in 2011, measured by stability, infrastructure and other indicators.
Papua New Guinea, which has around 6.4 million people and covers an area slightly larger than California, has been prone to outbreaks of political instability. A power struggle between Prime Minister Peter O'Neill and his predecessor Michael Somare, who led the country for many years following independence in 1975, lasted several months before it was settled in an August general election.
Since winning that vote, Mr. O'Neill has signaled he wants to use the nation's vast resources to attract more foreign capital to investments in tuna processing, mining and natural gas.
Australia, which is separated from Papua New Guinea by 150 kilometers, or about 94 miles, of water at its northern tip, is the biggest investor in the country, Ms. Hayward-Jones says, with oil producers including Santos Ltd. STO.AU +0.96% and Oil Search Ltd. OSH.AU +0.13% partnering Exxon in the PNG LNG Project. The U.S. and Malaysia are also significant investors, although China is making a bigger play.
"There is no conflict whatsoever" between Papua New Guinea's strengthening of its relationship with China and ties with traditional diplomatic allies like Australia, William Duma, minister for petroleum and energy, said in an interview. "Aren't we all looking to export to China?"
Beijing has offered loans totaling 6 billion kina ($2.9 billion) to Papua New Guinea for infrastructure projects, following similar moves by China in other Pacific Rim countries, such as Tonga, which also have valuable resources like fishing rights. Mr. O'Neill said late last year that the government planned to draw down as much as US$200 million of those loans this year.
"China is showing more interest in investing in the Pacific," said Ronald May of the Australian National University.
Unlike many of its resource-rich neighbors, Papua New Guinea remains lightly explored, increasing its appeal to overseas investors. France's Total SA FP.FR +0.52% and Japan's Mitsubishi Corp. 8058.TO +3.77% each placed bold bets on the country last year, taking stakes in natural-gas discoveries or exploration blocks.
Wood Mackenzie, a U.K.-based consultancy, estimates Papua New Guinea has 26 trillion cubic feet of natural gas—roughly equivalent to U.S. consumption of the clean-burning fuel in a year.
It also has large deposits of metals such as copper and gold that have attracted major companies like Xstrata PLC, Barrick Gold Corp. ABX.T +8.59% and Newcrest Mining Ltd. NCM.AU +0.41% However, mining those deposits can be hard: Deals often need to be struck with tribal leaders, and such deals run the risk of unwinding later. The Panguna copper mine on the island of Bougainville was shut down in 1989 after attacks on the mine and its staff amid a wider armed insurrection.
"It ranks high on the list of difficult places to do business," said Mr. May, of the ANU.
Many Pacific nations feel Australia has neglected ties with them, favoring closer relations with the U.S. and Asia instead. Ms. Gillard will seek to reboot the relationship with Papua New Guinea in talks with Mr. O'Neill, while at the same time cementing its influence in the region.
Mr. Duma signaled that any relationship reset needs to reflect Papua New Guinea's growing stature in the region.
"We are a big regional player after Australia and New Zealand," he said.
When Julia Gillard lands on Thursday in Port Moresby, the capital, for the first visit by an Australian prime minister in four years, she will be following visits earlier this year by Thai Prime Minister Yingluck Shinawatra and a U.K. government minister. China, too, has made little secret of its desire to secure diplomatic weight in Papua New Guinea, offering nearly $3 billion in loans for infrastructure projects last year and signing a long-term deal to buy a chunk of the country's first exports of natural gas.
Defense and deeper economic ties will top the agenda during Ms. Gillard's visit. Australian officials have also been advising their Papua New Guinea counterparts on establishing a new sovereign-wealth fund.
"We're seeing a flurry of visits in recent times. The Thai prime minister doesn't visit just for the hell of it," said Jenny Hayward-Jones of the Lowy Institute for International Policy, a think tank based in Sydney. "We're seeing a lot more economic competition between Chinese business and Australian and other businesses in Papua New Guinea."
The Pacific country has large deposits of natural gas, metals including copper and gold, and valuable fishing rights that have long appealed to foreign investors.
Exxon Mobil Corp. XOM +0.60% has placed the biggest bet on the country's resources sector, leading the development of the $19 billion PNG LNG Project, which is expected to ship its first cargoes of liquefied natural gas to Asian customers such as China Petrochemical Corp., known as Sinopec, next year.
Papua New Guinea has long been a recipient of foreign aid, including from Australia. Little infrastructure exists outside Port Moresby and the hilly, densely forested terrain makes moving around difficult. The country is made up of several thousand separate communities, and has a long-running history of tribal conflict. That lawlessness has been made worse by an influx of guns and other weapons into urban areas.
Port Moresby was rated one of the worst cities in the world, by the Economist Intelligence Unit in 2011, measured by stability, infrastructure and other indicators.
Papua New Guinea, which has around 6.4 million people and covers an area slightly larger than California, has been prone to outbreaks of political instability. A power struggle between Prime Minister Peter O'Neill and his predecessor Michael Somare, who led the country for many years following independence in 1975, lasted several months before it was settled in an August general election.
Since winning that vote, Mr. O'Neill has signaled he wants to use the nation's vast resources to attract more foreign capital to investments in tuna processing, mining and natural gas.
Australia, which is separated from Papua New Guinea by 150 kilometers, or about 94 miles, of water at its northern tip, is the biggest investor in the country, Ms. Hayward-Jones says, with oil producers including Santos Ltd. STO.AU +0.96% and Oil Search Ltd. OSH.AU +0.13% partnering Exxon in the PNG LNG Project. The U.S. and Malaysia are also significant investors, although China is making a bigger play.
"There is no conflict whatsoever" between Papua New Guinea's strengthening of its relationship with China and ties with traditional diplomatic allies like Australia, William Duma, minister for petroleum and energy, said in an interview. "Aren't we all looking to export to China?"
Beijing has offered loans totaling 6 billion kina ($2.9 billion) to Papua New Guinea for infrastructure projects, following similar moves by China in other Pacific Rim countries, such as Tonga, which also have valuable resources like fishing rights. Mr. O'Neill said late last year that the government planned to draw down as much as US$200 million of those loans this year.
"China is showing more interest in investing in the Pacific," said Ronald May of the Australian National University.
Unlike many of its resource-rich neighbors, Papua New Guinea remains lightly explored, increasing its appeal to overseas investors. France's Total SA FP.FR +0.52% and Japan's Mitsubishi Corp. 8058.TO +3.77% each placed bold bets on the country last year, taking stakes in natural-gas discoveries or exploration blocks.
Wood Mackenzie, a U.K.-based consultancy, estimates Papua New Guinea has 26 trillion cubic feet of natural gas—roughly equivalent to U.S. consumption of the clean-burning fuel in a year.
It also has large deposits of metals such as copper and gold that have attracted major companies like Xstrata PLC, Barrick Gold Corp. ABX.T +8.59% and Newcrest Mining Ltd. NCM.AU +0.41% However, mining those deposits can be hard: Deals often need to be struck with tribal leaders, and such deals run the risk of unwinding later. The Panguna copper mine on the island of Bougainville was shut down in 1989 after attacks on the mine and its staff amid a wider armed insurrection.
"It ranks high on the list of difficult places to do business," said Mr. May, of the ANU.
Many Pacific nations feel Australia has neglected ties with them, favoring closer relations with the U.S. and Asia instead. Ms. Gillard will seek to reboot the relationship with Papua New Guinea in talks with Mr. O'Neill, while at the same time cementing its influence in the region.
Mr. Duma signaled that any relationship reset needs to reflect Papua New Guinea's growing stature in the region.
"We are a big regional player after Australia and New Zealand," he said.
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