Pacific

Energy giants converge on PNG as exploration activity increases

11:01 am on 27 February 2012

There's increased interest in Papua New Guinea by major global energy companies keen to unlock the value of the country's substantial oil and gas assets.

Last week, Mitsubishi entered into a joint venture to develop leases held by Canada's Talisman Energy in Western Province for potential gas exports.

Exxon Mobil is already leading the major Liquefied Natural Gas project in PNG while this month, Shell announced it's setting up an office in Port Moresby to further its alliance with the state energy company, Petromin.

And now PNG's Oil Search Ltd has announced its drilling activities in the Gulf of Papua are attracting interest from major players.

Johnny Blades reports:

The full extent of PNG's energy resources is still unknown, but exploration activities underway are throwing open doors of big business opportunity.

Oil Search says recent extra gas discoveries would support a third 3.3 million tonne supply for the PNG LNG project, which it says could double PNG's gross domestic product.

Development of PNG's oil fields has been ongoing for almost two decades but according to Gordon Ramsay, an analyst for the global financial services company UBS, the gas sector is beginning to take off in a major way:

"Gas is starting to be commercialised and there's some world class gas discoveries in Papua New Guinea. The Hides field is quite large and one of the cornerstone fields behind the PNG LNG Project which is slated to come on stream towards the end of 2014. (Canadian company) InterOil's also looking at moving forward with a project in Papua New Guinea - LNG as well. So there's activity, certainly, on commercialising the substantial gas resource that PNG has."

PNG's Minister of Petroleum and Energy, William Duma, describes the country as virgin territory in terms of oil and gas exploration.

He's welcomed the re-entry to PNG of Shell, who the government sees as a leader in developing the Elk/Antelope resource which is currently licensed to Interoil - a company that Mr Duma says is too small an entity to be able to do justice to the resource's potential.

We need more investment in our resources sector. Shell is one of the world's largest energy companies. We've already got Exxon Mobil in the country. So for us, in terms of competition, we're better off having more major energy companies showing interest and actually investing in PNG.

Gordon Ramsay says while the main discoveries have been onshore, in remote and challenging regions like the Southern Highlands, recent drilling in the Gulf has generated excitement.

In Papua New Guinea, I think certainly in the Southern Highlands region, the terrain has made it very difficult to explore in the area so there's not a high level of maturity of exploration, so there's potential to find more gas. But again, it really comes down to drilling wells and proving that up. And in the Gulf, there's already been some discoveries but Oil search is confident there are more to be made.

However there's growing public discourse in PNG about the benefits from major resource extraction.

Richard Denniss of the Canberra think tank, The Australia Institute, says that just because major mining, oil and gas operators spend huge amounts promoting the benefits from their projects, such as jobs created and economic spinoffs, it doesn't mean that it's true.

What we need to do is distinguish the fact that these projects cost huge amounts of money with the claim that they deliver huge amounts of benefit. When the vast majority of the money is spent on imported equipment, when the vast majority of the profits earned gop to the foreign owners, then all of a sudden the multi-billion dollar projects that we hear about often have quite small economic impacts on the local economy but very large impacts on the enviornment and also on things like the distribution of income and the way that the smaller economies are organised.

PNG's civil society meanwhile has repeatedly voiced concern that the growth of the resources sector will only increase PNG's systemic problems with corruption among officials.