BY SARA STEFANINI
IN TWO SEPARATE NEWS STORIES last week, two very different images emerged of Papua New Guinea and its lure for oil and gas majors.
The first reminded us that the Pacific country is still plagued by political weakness and instability as well as local hostility. The second highlighted PNG’s new image as a burgeoning global gas hub, ripe for LNG exports.
“Despite the abundant resource wealth and increasing foreign investment, PNG continues to face high levels of poverty, which have fuelled local grievances towards projects in the extractive industries,” global risk researcher Maplecroft said in a profile published in mid-March.
“Social resentment over the lack of investment by the government at a local level risks business, particularly extractive projects, becoming a target for violence and criminality,” it added.
Similarly, Standard & Poor’s lowered PNG’s long-term sovereign credit rating from stable to negative in January, because of “weakened political settings” following a short-lived battle between two would-be prime ministers in December.
Buoying those descriptions, the PNG government sent troops into the Southern Highlands on Thursday to quiet landowner protests near the site of ExxonMobil’s $15.7 billion LNG project. Work at the site has been suspended for weeks as landowners are demanding additional compensation.
Even more telling, perhaps, is what did not happen this week. InterOil has not announced a final investment decision for its Gulf LNG project, the country’s second proposed export facility.
The Texas company had aimed to announce it last December, but the constitutional crisis scuppered those plans. It then pushed the target date to 31 March.
While InterOil did not return Interfax’s call on Thursday, an investment bank analyst who covers the company said the government is to blame for the delay.
“The hold up right now is they have not yet received final government approval,” said Pavel Molchanov of Raymond James. “If the timing of the project was purely in InterOil’s control, I’m sure they would have reached a final investment decision by now.”
But the delays, protests and troops do not appear to be deterring the big players. The same day the troops charged into the Exxon site, China National Offshore Oil Corp. stepped into PNG with the acquisition of a 70% stake in three petroleum prospecting licences.
This came just weeks after Exxon and its LNG partner, Oil Search, expanded their already sizeable PNG assets, buying a prospecting licence for $15 million. Just a few weeks before that, Mitsubishi agreed to pay $280 million for stakes in nine of Talisman’s prospecting and retention licences, which could be developed into a third LNG project.
After all, for the majors, PNG is no riskier than many other resource-rich hubs, argued Molchanov. “Oil and gas companies have been going into dangerous countries for a long time; it’s certainly not like Iraq.”