UPDATE 2-PNG-Australia gas pipeline faces new setback Reuters.com

MELBOURNE, Aug 16 (Reuters) - A planned $3.5 billion Papua New Guinea-to-Australia gas pipeline suffered a setback on Wednesday when Australian Gas Light Co. (AGL.AX: Quote, Profile, Research) said it might suspend design work on a lack of firm customers and rising costs.
The decision knocked as much as 15 percent off the shares of Australian-listed Papua New Guinea oil and gas producer Oil Search Ltd. (OSH.AX: Quote, Profile, Research), the key owner of the natural gas reserves that were to go into the pipeline from 2009.
AGL, responsible for designing the pipeline together with Malaysian partner Petronas and has committed to buying as much as 40 percent of the gas, said it wrote off A$25.1 million ($19.2 million) pre-tax, reflecting what it has spent on front-end design work.
It said most of the budgeted work had been completed and was deciding whether to suspend the remaining A$10 million worth of work.
But AGL managing director Paul Anthony said he believed a viable project to bring PNG gas to Australia could still be developed and remained committed as a foundation customer for the gas, and analysts said the pipeline could still move forward.
"The project is now looking a bit shaky, but it's certainly not the death knell," said ABN AMRO analyst Jason Mabee. He said there was still hope as no one had walked away from talks yet.
Oil Search said it believed AGL's move was designed to force potential customers and new owners to sign up to the pipeline, jump-starting the long-delayed project. Continued