PNG-to-Australia gas pipeline moves closer to becoming reality

Jun 22, 2004 02:00 AM

The long-delayed A$ 3.5 bn Papua New Guinea-to-Australia natural gas pipeline is a step closer to becoming a reality, with backers aiming to sign off on a budget for design of the project soon. The project, operated by energy giant ExxonMobil, has struggled for several years to secure enough customer commitments to underpin construction of the 3,200 km pipeline linking the two nations.
But ExxonMobil has put forward a proposal authorizing funds for a front-end engineering and design, or FEED, analysis of the project, on which the joint venture partners will soon vote, sources close to the venture say. Approval of funds for construction planning -- expected to be between $ 70 mm and $ 100 mm -- will be a key determinant in whether the pipeline goes ahead or is shelved indefinitely.

By moving ahead with the FEED stage, the partners hope to boost customer confidence in the project and secure new commitments. They also hope to capitalize on increased interest from energy buyers after an explosion at Santos's Moomba gas plant in central Australia earlier this year restricted supplies to parts of the nation. Australian-listed Oil Search has a 51.37 % stake in the pipeline project. Exxon has 40.67 %, Japan's Nippon Oil Exploration has 4.21 %, while PNG landowners own 3.75 %.
To date the pipeline, which would provide a ready market for Papua New Guinea's significant gas reserves, has commitments to supply up to 80 PJ of gas annually. But analysts believe the project would need commitments of between 100 and 150 PJ to be considered viable. Delays in the project also have resulted in several customer commitments lapsing.

A spokesman for ExxonMobil said talks are continuing with the partners and the PNG government to agree on a way forward.
"The objective of those discussions is to reach an agreement that would allow the project to enter FEED," the spokesman said.
An Oil Search spokeswoman said the partners are close to voting on whether to move ahead with construction design, but declined to comment on when this is likely to occur.

Source: Dow Jones
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