2012-02-03 17:02:58 - Papua New Guinea Oil and Gas Report Q1 2012 - a new market research report on companiesandmarkets.com

The future is bright for Papua New Guinea (PNG), as long as it can successfully transform its unused gas reserves into exportable LNG. The first scheme is proceeding apace and there are encouraging signs that the second project is finding buyers for its output. Oil production is falling and imports are rising, but the timely arrival of LNG revenues should transform the economy.

The main trends and developments we highlight for PNG´s Oil and Gas sector are:

- Two major liquefied natural gas (LNG) projects are currently being developed in PNG. The first is the US$15bn ExxonMobil-led PNG LNG project, which was granted final approval in December 2009. Once completed, the project could treble PNG´s exports and more than double its GDP.

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InterOil has signed a preliminary deal that could lead to the first LNG offtake agreement for its proposed Gulf LNG project. The company announced on August 2 2011 that it had signed an agreement with a subsidiary of Hong Kong´s Noble Group for the supply of 1mn tonnes per annum (tpa) of LNG for 10 years starting in 2014. Binding agreements were expected by end- 2011, the companies said.

- Oil consumption is forecast to increase by around 5.0% per annum to 2016, implying demand of around 42,600b/d by the end of the forecast period. The net import requirement would therefore be approximately 11,800b/d by 2016.

- Oil Search´s gross production in H111 was 3.56mn barrels of oil equivalent (boe), down 10% on the first half of 2010. A two-week planned shutdown of the Central Processing Facility (CPF) and Agogo Processing Facility (APF) began on August 16 2011. As a result of the shutdown, second-half production is expected to be lower than in the first half. Oil Search´s guidance for 2011 full-year production has been maintained at between 6.2mn and 6.7mn boe, or up to 18,356 barrels per day (b/d) of liquids.

- While Oil Search continues with an active exploration programme and attempts to halt a decline in output, we are assuming that PNG´s oil volumes will be no more than 31,000b/d by 2016, unless fresh accumulations are brought into play.

- By 2016, the net crude oil import requirement is expected to rise to 11,800b/d, costing some US$403mn. In 2011, we expect PNG to have imported an average of 600b/d, costing US$23mn. US$17.7bn. Potential petroleum export revenues for 2016 are therefore estimated at US$17.3bn, with LNG export revenues dwarfing the cost of rising oil imports.

At time of writing, we assume an OPEC basket oil price for 2011 of US$101.90/bbl, falling to US$99.40/bbl in 2012. Global GDP in 2011 is forecast at 3.2%, down from 4.3% in 2010, reflecting slowing growth in China, a faltering recovery in the US and a worsening eurozone debt crisis. For 2012, growth is put at 3.6%.

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