GAS

Oil Search says PNG pipeline still a goer

OIL Search has responded to suggestions the Papua New Guinea pipeline may not go ahead, arguing A...

Oil Search says PNG pipeline still a goer

Shares in Oil Search, the project’s biggest investor, plunged 56c to $A3.16 in the wake of the news – the biggest drop in almost four years - and the company was quick to respond.

"Oil Search believes that the Australian portion of the pipeline and infrastructure is a potentially valuable asset and an attractive investment for the right investor – one which would attract material interest, given final confirmation of offtake arrangements," the PNG-based company said.

"Oil Search believes that the PNG Project remains an economically attractive project, and we look forward to early resolution of the issues raised by AGL in their release."

The company indicated faltering negotiations between project participants and Santos were critical factors in AGL’s decision to scale back front-end engineering and design (FEED) work, with particular mention made of the company’s Moomba facility.

“Key to delivery of a revised pipeline ownership structure has been confirmation of final customer loads, especially at Moomba, that will allow the final pipeline configuration and capital costs to be confirmed,” Oil Search said.

“It is clear to all parties that this remains the key issue in moving this project forward to a potentially successfully outcome.”

Oil Search also pointed to AGL’s earlier indications to the market that it was unlikely to remain a long-term owner of the Australian portion of the pipeline.

Santos has a 25% stake in the Hides gas fields, which are close to the fields currently linked with the PNG Gas Project, so the company has long been seen as a likely partner in the development.

But it has shown little enthusiasm so far for the PNG project. Recent Santos investor briefings – some of which have been very extensive – have made no mention of PNG gas.

What doubts exist over the PNG Gas Project centre on whether gas piped across Torres Strait can compete on price with local gas supplies.

Coal seam methane production is growing rapidly in Queensland. CSM developments are close to the country's existing pipeline network, and new reserves are being proved up at exponential rates. The big CSM players are also constantly improving their techniques, boosting production beyond previous thresholds.

Santos itself recently reported it had boosted production at its recently purchased Fairview coalbed methane project in central Queensland by up to 15% and next year it would run a new pipeline from Fairview to Wallumbilla and ramp up to 90 producing wells, up from the current 52.

But CSM gas is dry, having no condensate or liquefied petroleum gas content, and Santos needs to find more liquids-rich gas to extend the life of the Moomba plant beyond the projected life of Cooper Basin gas fields, which are expected to be in rapid decline within a decade.

The PNG Government has offered to make some liquids available to Moomba as a sweetener to bring Santos into the project.

But the opportunity to monetise its stake in the Hides fields and extend the life of Moomba has not been enough to make the Adelaide-based major commit to the project.

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