In December 2003, Western Mining Corporation reached conditional agreement on commercial terms for the supply of 12-30 petajoules a year of gas piped from PNG to replace Olympic Dam's liquid fuel supply, and to develop gas-fired power generation at the site.

But BHP Billiton has now said they are not in a position to make a decision regarding a gas purchase for Olympic Dam at this time.

PNG Gas Project majority partner, Oil Search, conceded it was ‘disappointed’ by this development, but project operator Esso Highlands Limited, a subsidiary of Exxon Mobil, put a brave face on the news.

“The decision not to proceed with an agreement at this time with Olympic Dam will free up capacity and reserves to allow the PNG Gas Project to advance discussions with a number of other parties," said ExxonMobil Gas and Power Marketing vice president new business development Rob Franklin.

Oil Search managing director Peter Botten said the project partners believed the remaining conditional contracts were sufficient to underwrite the project, subject to successful completion of front-end engineering and design (FEED).

“Work remains focused on converting the existing conditional contracts to firm and binding gas sales agreements and pursuing additional markets in the Northern Territory, Queensland and the southern states," Botten said.

Esso Highlands PNG Gas Project manager Peter Graham said FEED phase technical deliverables were nearing completion.

"The project has made good progress in the FEED program and related activities, with the objective of being in a position to make a project sanction decision in early 2006," Graham said.

The PNG Gas Project participants are currently ExxonMobil (39.4% - Esso Highlands Limited as project operator), Oil Search (54.2%), MRDC (3% - a PNG company representing landowner interests) and Nippon Oil Exploration Limited (3.4%). Santos is reported to be negotiating for a stake in the project.

APC (a consortium led by AGL and Petronas) is undertaking the FEED program for the Australian component of the pipeline. APC has commissioned GHD Pty Ltd as its FEED contractor.