"We postulate that the PRL 11 and PRL 12 licences would be renewed for one year or 18 months [if FEED proceeds], and then would be renewed again in 2009 only if the project achieved final investment decision," the National newspaper quoted a JP Morgan research piece as saying.

The two licences, which cover the southern portion of the Hides field and Angore, will lapse on March 24, 2008.

JP Morgan added PNG ministers had indicated they would potentially tie FEED to FID, but did not detail exactly how they would achieve this.

The investment house also said the PNG Government recognised it may have to compromise its fiscal terms to ensure the proposed LNG project remained more competitive with other projects.

"We note that if for some reason, Exxon did not want to pursue the PNG LNG project, we believe that others, such as BG, would be waiting in the wings to pick up operatorship of the project," JP Morgan said.

"This would likely delay authority of the project, but could lead to an overall similar or shorter timeframe given BG’s aggressive schedule compared to Exxon."

The ExxonMobil-led LNG project centres around a $US9-10 billion plant capable of producing about 6.3 million tonnes of LNG per annum.