PNG pipeline budget blows out

DEVELOPMENT costs for the planned Papua New Guinea-to-Queensland gas pipeline have blown out by up to $A1 billion, forcing The Australian Gas Light Company to re-examine its role in the project and the pipeline's route.

PNG pipeline budget blows out

New AGL chief executive Paul Anthony told a UBS-hosted investment presentation yesterday that the cost of the pipeline, to be built and owned by AGL and Malaysia’s Petronas Gas, has jumped to between $3.5 billion and $4 billion from an earlier estimate of $3 billion.

The final investment decision timetable for the pipeline is now expected to be delayed, he said.

The increase was said to be driven by a global increase in construction costs due to increasing labour costs and commodity prices.

Front-end engineering and design costs and the budget for the project are also being revised with the likelihood of a longer development timeframe according to AGL. The 2009-10 timetable for first gas is now starting to look unlikely to be met.

Anthony said AGL might bring in international partners with more pipeline experience to reduce the company’s 50% equity in the pipeline.

The delays come only a week after PNG petroleum player Oil Search said it would not meet its first half FID target for the $3.8 billion upstream PNG Gas project. A decision is now due in the second half of 2006.

Speaking at the South-East Asia Australia Offshore Conference (SEAAOC) in Darwin last week, PNG Petroleum Minister Sir Moi Avei said he was "quietly confident" the upstream and pipeline project would proceed. But he told journalists at the gathering that pipeline construction costs and the possibility of higher gas tariffs were troubling.

If pipeline construction costs required higher gas tariffs, the PNG Gas upstream project could be reduced. The upstream partners have committed to sell gas to Australian customers but may have to accept lower margins for this gas.

An AGL spokeswoman told the long-term view of the company was always to divest its stake in the project.

“It only makes sense strategically for AGL energy to retain a share in the short term to help deliver the project to market, given the position we have taken with committing to gas contracts and the equity position upstream,” she said.

“It’s all about who is the natural owner of the asset, and a pure energy company is not the natural owner of that asset.

“It doesn’t reflect a lack of willingness from our perspective or our commitment to wanting to see this project get up because we certainly see the importance of having an additional supply of gas into eastern Australia.”


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