New Market Report Now Available: Papua New Guinea Oil & Gas Report Q4 2013

First gas from Papua New Guinea's greenfield PNG LNG facility, the country's first gas export project, is due online in 2014. There continues to movement on other projects and we could soon see decisions regarding an expansion of export capacity beyond the first two trains, which are due online next year. Gas projects will also offer some relief to liquids, and condensate from the PNG LNG project will give oil production a temporary boost.

The main trends and developments we highlight for PNG's oil and gas sector are:

* The most significant development in Papua New Guinea (PNG)'s oil and gas sector was movement on the long-stalled, InterOil-led liquefied natural gas (LNG) project. While it appeared that Royal Dutch Shell, long interested in PNG's upstream, was to partner with InterOil in developing the Elk and Antelope fields, ExxonMobil emerged as the winner. It was reported in May that InterOil and partner Pacific LNG entered into exclusive negotiations for the gas resources on PRL 15.
* Options under consideration include using resources on PRL 15 to support development of a third train at the PNG LNG project or developing a standalone Gulf LNG project as per InterOil's original development concept. We now view a greenfield Gulf LNG project as less likely, but we have priced in additional volumes from a third train at PNG LNG from 2017 as we now view this as the most likely scenario. However, given the lack of certainty, we could again alter our forecast.
* Overall, our view remains largely optimistic on PNG gas sector, which we expect will expand beyond the initial two trains due online from the Exxon-led PNG LNG project in 2014. First gas from the project could treble PNG's exports and boost its GDP by at least 20%. At the time of writing the project was 80% complete despite a 20% cost overrun. We highlight the increase in costs, which was slightly offset by a capacity expansion, as a risk to the profitability of future projects.
* Independent of negotiations with InterOil, Exxon and Oil Search continue their appraisal of both the Highlands and the P'nyang gas fields. It is hoped that either site or possibly both will contain the resources to support an expansion of capacity at PNG LNG.
* With a weak outlook for liquids production from existing fields, many of which are mature, the long-term outlook for oil production is questionable. Some upside comes from condensate production as part of the PNG LNG project as well as from the Mandana discovery, but falling output elsewhere will make the recovery in volumes only a temporary development.
* PNG remains strategically located for exports to Asia and currently benefits from significantly lower development costs than projects in nearby Australia. This should help make PNG gas competitive, even as new projects come online across East Africa, Russia and elsewhere targeting the Asian LNG market.

Full Report Details at
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