PNG opens door to LNG investment

PNG government encouraging LNG joint ventures could be big for Australia’s gas producers.

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Many countries are fiercely protective of their natural resources, but Papua New Guinea’s Prime Minister Peter O’Neill has thrown open the door to foreign investment in the country’s rich gas and mining industries, encouraging more joint ventures with local operators. Spending on resource projects in PNG is expected to slow significantly this year as current projects come online, and the government is keen to counter that with a new focus on LNG production.

The encouragement is good news for Austrian companies already involved in gas in the region including Oil Search Limited (ASX: OSH) and Santos Limited (ASX: STO) who are participating in the Exxon-Mobil (NYSE: XOM) led the US$19 billion PNG-LNG co-venture project which is expected to make its first delivery in 2014. The project is developing capacity to produce 6.9 million tons of LNG per year, with a reported total production of over nine trillion cubic feet of gas over the projects life.

Mr O’Neill’s declaration may offer new opportunities to big LNG players like Origin Energy Limited (ASX: ORG) — who are currently undertaking the vast Australia Pacific LNG (APLNG) joint-venture — and Woodside Petroleum (ASX: WPL) who have a history of getting involved in big LNG projects and most recently brought online the flagship Pluto LNG project.

Woodside Petroleum in particular may be able to leverage off previous experience in dealing with governments, such as its current Sunrise LNG project; a joint venture between the company and Timor-Leste government which is estimated to contain 1,717 billion cubic feet of dry gas and 75.6 million barrels of gas condensate.

The opportunities in PNG are estimated to be significant. A February report by ANZ Banking Group (ASX: ANZ) estimating PNG’s export revenues capable of growing six-fold by 2030 to US$25 billion on the back of the country’s natural resources.  The report estimated this would require up to US$130 billion in investment in the country; investment the government is happy to encourage.

Foolish takeaway

Papua New Guinea has historically represented challenges for exploration and production due to the country’s rugged geography and remote site access.  However new technology and government support may turn the country into a valuable new prospect of Australia’s LNG players.

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