Imminent LNG capacity expansion in PNG

The Papua LNG project will unlock new gas fields in the Gulf Province

The impact LNG continues to have on Papua New Guinea (PNG) is quite staggering. PNG LNG is the only fully operational project but reflects 9% of GDP (or US$3.5billion in export value in 2022). For a country which has struggled to develop the incredibly harsh and unforgiving terrain that dominates the interior, PNG LNG is seen as a beacon of hope and has enabled PNG to be one of the world’s faster growing economies in recent years.

The PNG LNG project is a wonder of engineering, with its 690km pipeline stretching from the Hides and Angore gas fields in the highlands of PNG all the way to the LNG export terminal near Port Moresby. To date PNG LNG has provided financial benefits to the country from exports to customers throughout Asia, which have grown strongly over the last decade as illustrated below.

With many undeveloped gas fields across the country, the potential for PNG to capitalise on the growing demand for LNG by leveraging its convenient location in Southern Asia through the development of the Papua LNG project that would access the largest undeveloped gas fields in PNG known as Elk-Antelope. Stakeholders in Papua LNG have opted to secure access of up to 2mtpa of existing liquefaction capacity from PNG’s existing 8.3mtpa LNG export terminal operated by PNG LNG (a 2-train terminal commissioned in 2014 near Port Moresby). This strategy would increase the combined export capacity to 10.9mtpa with a new dedicated 2.6mtpa Papua LNG train by 2025 but considering that the PNG LNG feedstock (see below) is likely to remain over 8mtpa through to 2050, we would expect a second dedicated 2.6mtpa Papua LNG train will be built around 2027.

PNG has followed the “modus operandi” of many emerging economies and has sought out foreign investment but at the same time has maintained partial ownership. The government has been actively looking to approve and develop more major projects and it was announced in September that the Papua LNG project had reached Final Investment Decision (FID) and will commence construction in 2024.

In March 2023, it was announced that Kumul Petroleum Holdings Ltd (KPHL), a state-owned entity, had signed a deal with Australia’s Santos to acquire a further 2.6% of the Papua LNG project, (Kumul’s current stake is 16.8%, with a further call option to acquire an additional 2.4%. This 2.4% option expires at the end of 2024 and there is some speculation as to whether Kumul can access the finance required to exercise the option. Even if they are unable to exercise this option, Kumul’s stake in the project will still amount to a significant 19.4%. Kumul’s stake in Papua LNG and other resource projects reflects the trend for governments in emerging economies to take an ownership stake, rather than chase tax revenue.

Ownership aside, PNG finds itself in an interesting place in 2023. Its natural resources are being sought after more so now than ever, as high prices for its major exports attract major global players wanting to navigate PNG’s unique mix of political, environmental, and natural barriers to entry.

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