PNG pipeline costs blow-out to $A5.3b: report

CAPITAL costs for the Australian section of the PNG pipeline have reportedly blown out to $A5.3 billion, according to PNG Petroleum and Energy Minister Sir Moi Avei who blamed Santos for many of the problems facing the project.

PNG pipeline costs blow-out to $A5.3b: report

Avei met with project participants in Sydney last Friday.

He said in a media statement he had been advised by the Australian Gas Light Company and Malaysia’s Petronas – 50:50 partners in the project – that the Australian section of the construction phase would now cost around $5.3 billion – up from the previous estimate of between $3.5 billion and $4 billion, and well up from the original budget of $3 billion.

Last week, AGL managing director Paul Anthony revealed a decision had been made to scale back front-end engineering and design (FEED) activities on the basis of “the continued lack of committed foundation gas load in an environment of continually escalating construction costs”.

“The massive increase in the cost of the pipeline construction phase in Australia is a major challenge – but we need to work together to overcome it in a way that is reasonable and feasible,” Avei said.

Avei reportedly delivered an end-August deadline to project participants to “clarify” its position on the project.

It was unclear whether this extended to Australian oil and gas major Santos which was singled out by Avei as being responsible for “unacceptable” delays in the project.

Santos delays "unacceptable"

"I expect Santos to indicate very clearly whether or not they wish to be a part of the PNG Gas Project," Avei said in a media statement.

"The long delay in Santos' decision on whether or not to enter the project is both unacceptable and a disappointment to the PNG Government."

"The Government of PNG's position is that the economics of the project remain sound, and that it continues to be the key to the commercialisation of the nation's vast gas resource," he said.

Avei said the PNG Government had done everything possible to provide the support required for the project to proceed.

"The Government will not, and could not, permit the nation's gas resources to be sold at 'give-away' prices and had a responsibility to ensure a commercially reasonable price was received for the gas to be provided as part of the PNG Gas Project and for downstream processing," he said.

"The Government will not countenance unreasonable, and unnecessary, delays in bringing the project to the sanctioning stage.

Avei said the fact that the cost of the pipeline construction phase in Australia had increased considerably was a challenge for the project partners but one he was very confident could be overcome.

"We are close to securing the necessary volume of customer agreements in Australia and every effort needs to be made by all stakeholders to achieve closure on the agreements," he said.

He said the PNG Gas Project was absolutely critical to the commercialisation of the nation's gas resource and would enable the significant onshore processing of gas – for liquefied petroleum gas, liquefied natural gas and other uses such as methanol, as well as the provision of affordable, reliable domestic electricity.

"No other project in our history – or as far as we can foresee into the future – offers the export income, the revenue, the employment, landowner benefits, and downstream processing opportunities that the PNG Gas Project will guarantee," Avei said.

"This project is mutually beneficial for Papua New Guinea and Australia – as it will deliver to the growing Australian energy market reliable, environmentally friendly and competitively priced gas as well as substantially benefiting Papua New Guinea and our 5 million men, women and children."


A growing series of reports, each focused on a key discussion point for the energy sector, brought to you by the Energy News Bulletin Intelligence team.

A growing series of reports, each focused on a key discussion point for the energy sector, brought to you by the Energy News Bulletin Intelligence team.


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