Natural gas project clears Papua New Guinea hurdles

$15bn in funding secured for the first development of its type for the country.

A major project to develop the first gas exports from Papua New Guinea is to proceed, having cleared its final investment hurdle. Funding for the US$15bn (Dh55.09bn) project, called PNG LNG, would come from the development consortium's partners and through loans arranged with export credit agencies and commercial sources, said ExxonMobil, the consortium leader.

The parties funding the project may include the Abu Dhabi Government-owned International Petroleum Investment Company (IPIC), which holds 17.6 per cent of Oil Search, the Papua New Guinea oil and gas company that is the second-biggest partner in PNG LNG. Oil Search holds a 29 per cent stake in the liquefied natural gas (LNG) project, compared with ExxonMobil's 33.2 per cent. IPIC officials could not be reached yesterday for comment.

"The project team successfully negotiated this complex transaction for the project in a very difficult financial market," said Neil Duffin, the president of the ExxonMobil unit ExxonMobil Development. "We believe our record of developing and operating world-class assets was a key component of this successful financing," he added. Yesterday, the US-based ExxonMobil, which is the biggest international oil company in terms of assets and market capitalisation, said its affiliate Esso Highlands was proceeding with "full execution" of the integrated gas development. The project would include gas production and processing facilities, gas liquefaction and storage facilities with a capacity of 6.6 million tonnes per year, and more than 700km of pipelines.

Over its 30-year lifespan, PNG LNG was expected to produce more than 9 trillion cubic feet of gas for export from Papua New Guinea in the form of LNG. First deliveries of the supercooled gas were expected to begin in 2014, ExxonMobil said. Several large Asia-Pacific utilities including Taiwan's CPC, Japan's Osaka Gas and Tokyo Electric Power, and China's Unipec Asia, a subsidiary of the Chinese state-controlled Sinopec, have signed long-term contracts to purchase gas from PNG LNG.

ExxonMobil said the project, which would be Papua New Guinea's largest industrial development, was a "key part" of its strategy to exploit opportunities in the global natural gas market. The company predicted that Asia-Pacific gas demand would more than double by 2030, and that a third of that would be met through LNG imports. A year ago, IPIC purchased a $1.1bn bond from the government of Papua New Guinea, convertible into a 17.6 per cent stake in Oil Search.

"We are very pleased to be participating in the PNG LNG project, which promises to deliver 30 years of clean energy supply to the growing Asia-Pacific market," Khadem al Qubaisi, the managing director of IPIC, said at the time. Last October, however, IPIC walked away from a deal to purchase a direct 3.5 per cent stake in the project from Oil Search for about $1bn, citing regulatory red tape and time constraints. Mr al Qubaisi said IPIC remained "very supportive" of Oil Search and the LNG project.

Despite the recent downgrading of its debt by Moody's Investors Service as part of the rating agency's review of Abu Dhabi Government-related issuers, IPIC is proceeding with a $2.5bn syndicated deal to refinance existing debt, which is expected to close tomorrow. Moody's cut its rating of IPIC's debt by one notch to "Aa3" from "Aa2" this month. [e-mail]