Future up to Exxon

The Courier-Mail

EXXON Mobil is expected to consider a plan this week for a staged development of a gas pipeline from Papua New Guinea to Australia, in what could be the "last hope" for the stalled project.JPMorgan analysts said Exxon was scheduled to hold talks with Oil Search and Australian Gas Light Co – the two project partners who support the staged development plan.
But JPMorgan said Exxon may not be willing to back the proposal because rising construction costs have reduced the project's profitability.
AGL, the operator of a venture to build the Australian part of the proposed pipeline, said last month it would not proceed with engineering work because the project wasn't economic unless more customers committed to buying gas.
The Sydney-based company has proposed an alternative route for the pipeline where the line would stop at Mount Isa instead of going down the Queensland coast to Gladstone with a lateral line from below Townsville to central Australia.
"The last hope for PNG gas in its current incarnation is the Mount Isa option," Sydney-based JPMorgan oil and gas analysts Mark Greenwood and Ryan Martyn said in the report.
"A meeting with Exxon is planned in Houston (this week) and we understand that, either way, we will know the fate of PNG gas by around the end of September."
Shares in Oil Search, which have fallen almost 20 per cent since AGL's decision to stop engineering work on the project, slipped 10¢ to $3.01 on Friday on the Australian Stock Exchange.
Port Moresby-based Oil Search, Papua New Guinea's biggest oil producer, is the biggest investor in the PNG gas fields that will supply the pipeline. Estimates of the cost of the Australian part of the pipeline have risen to between $4 billion and $5.3 billion.
Oil Search stock was "a buy" should Exxon support the staged project plan and it proceeds, JPMorgan said.
Otherwise, the project venture would be dissolved and Oil Search would pursue alternative options to develop the gas, including petrochemicals and liquefied natural gas projects, it said.
PNG's Petroleum and Energy Minister Moi Avei recently reconfirmed the Government's support for the gas pipeline project and said a revised construction plan was to be finalised within weeks.
He said that over the past 18 months the viability of the project had been subject to increasing pressure due to factors outside the Government's control, such as rising construction costs. However, the plan to pipe gas to Australia "remains the backbone of the Government's overall gas commercialisation strategy", he said.