Png Lng Evaluation Case

The Papua New Guinea liquefied natural gas (PNG LNG) project, to be constructed at Napa near Port Moresby, is a new gas project being championed by ExxonMobil to maximize the advantage from three large gas discoveries in the southern and western highlands of PNG. The new gas discoveries are the Hides, Angore and Juha gas fields, which are likely to have reserves approaching three to four trillion cubic feet.

The project will cost an estimated US$15 billion to construct through initial completion.

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Over its 30-year life, PNG LNG is expected to produce over 9 trillion cubic feet of gas and 200 million barrels of associated liquids. First LNG deliveries are scheduled to begin in 2014, following a construction period of about four years. It will supply four major LNG customers in the Asia Pacific region through long-term sales, including CPC Corporation, Taiwan (CPC); Osaka Gas Company Limited; Tokyo Electric Power Company Limited; and Unipec Asia Company Limited, a subsidiary of China Petroleum and Chemical Corporation. 1)The first hurdle for this mega project is the financing.

At $15 billion in commitments, the PNG LNG project finances — the largest pure project debt facility to date in the energy sector — taps a diverse set of funding sources including both tied and untied export credit agency facilities, a 16-strong club of commercial banks providing uncovered debt and sponsor co-financing.

(PNG, 2010) 2)The second major hurdle would be serious breakdowns in law and order in the capital, Port Moresby, the Southern Highlands and other rural areas that may damage the government’s capacity to attract new investors to follow Exxon Mobil.

The attempted assassination of PNG’s Ombudsman, Chronox Manek, in December has raised the prospect that violence in PNG may have evolved from opportunistic to politically motivated crime. Although foreign businesses with long experience in PNG are unlikely to be deterred, the publicity the events have received in Australia will induce caution in new small business investors. 3) Security issues for the PNG LNG project include increased levels of sophistication in crime reflected in elaborately planned robberies, kidnappings, extortion and politically influenced crime.

PNG police, constrained by budgetary and capacity limitations, have admitted that the trend is worrying, but have been unable to respond adequately. Foreign investment Exxon Mobil and its partners in PNG have invested heavily in security arrangements and protection for their staff and property to manage what is a high risk level.

Increased investment from smaller companies seeking to leverage profits from the expected boom will follow Exxon Mobil.

Construction companies are already capitalizing on the high demand for office and residential property. However, smaller companies have less financial resources to invest in their own protection, and could become vulnerable in an environment of greater risk. In addition to the local threats all LNG tankers and land-based facilities are vulnerable to terrorism. Tankers may be physically attacked in a variety of ways to destroy their cargo–or commandeered for use as weapons against coastal targets.

Land-based LNG facilities may also be physically attacked with explosives or through other means.

Alternatively, computer control systems may be “cyber-attacked,” or both physical and cyber attack may happen at the same time.