Exxon talks with InterOil on LNG export expansion in Papua New Guinea

By ROSS KELLY

BRISBANE -- ExxonMobil prefers to use natural gas fields in Papua New Guinea owned by InterOil to expand the country's $19 billion PNG LNG gas export project, rather than build a second export facility, a senior Exxon executive said.

Exxon last week began exclusive talks with Houston based InterOil to invest in the latter's gas assets in Papua New Guinea. However, it didn't specify at the time whether the assets would underpin a new LNG plant, or support an expansion of the PNG LNG project that's already under construction.

"We are interested in it because it could potentially provide an expansion of our existing facility," Mark Nolan, Exxon's Vice President, Middle East and Australia, told reporters.

Choosing not to build a second LNG plant could put Exxon at odds with Papua New Guinea's government, which wants to encourage as much investment as it can in the impoverished nation to stimulate economic growth. Expanding existing LNG projects is usually cheaper and less labor intensive than building them from scratch because some essential infrastructure such as roads and pipelines is already in place.

Papua New Guinea's government had insisted that InterOil bring in a company with experience in building and operating a multibillion dollar LNG plant. Relations have warmed in recent months as it became clearer that InterOil was closing in on a preferred development partner.

The PNG LNG project, which counts Australia's Oil Search Ltd and Santos Ltd as shareholders, is currently being built with two gas processing units, known as trains. The foundation stage of the project is more than 80% complete and on track to ship its first LNG cargoes to Asian customers next year.

Exxon and partners have already found more resources in Papua Guinea that could underpin an expansion of PNG LNG to three trains, including the recent P'nyang discovery, so Mr. Nolan's comments are the strongest sign yet that Exxon may be able to expand it to four trains.

Exxon has estimated that it would need another 4 Tcf or 5 Tcf of natural gas to add another train to PNG LNG.

"The resource will determine the size of the project, and, at the end of the day, the market will as well," Mr. Nolan said.

Wood Mackenzie, a United Kingdom-based consultancy, estimates Papua New Guinea has 26 Tcf of natural gas, roughly equivalent to United States’ consumption of the clean burning fuel in a year. That likely underestimates its true potential, as Papua New Guinea has only been lightly explored for oil and gas up to now.