“The world has caught up with and passed the PNG pipeline project with new opportunities that offer higher value,” managing director Peter Botten said in a conference call to journalists and analysts.
This morning’s announcement comes despite the PNG-focused company stating in its December quarterly report, released Tuesday, that the project was still “economically viable”.
In a release to the Australian Stock Exchange, Botten reiterated comments from the quarterly report that the company had received a positive response after seeking expressions of interest from pipeline builders and owners for the project, including a revised proposal to build the gas pipeline through Mt Isa in Queensland.
“The submissions confirmed Oil Search’s belief that the PNG gas project is an attractive investment option, based on appropriate cost control and continued strong market support,” he said.
“Nonetheless, it is clear that the alternative development options, including LNG, petrochemicals and other in-country options, which were not present two years ago, are now demonstrably more attractive and cannot be ignored.”
Botten conceded that part of the problem was low gas prices in eastern Australia.
“We see the eastern Australian gas market as being relatively constrained,” he said.
“The prices are at a significant discount to world prices. There is an effective cap on gas prices in that market because of the abundance of coal [which offers the ability to switch power sources].”
Botten said Oil Search’s preferred option for gas commercialisation was LNG, as this would produce the highest returns for the company. But petrochemical developments were also more attractive than the pipeline option.
Oil Search was likely to participate in an ExxonMobil-led LNG development that would draw on the Hides gas fields, according to Botten.
The company’s Kutubu fields could also be linked with the Hides LNG project or they could supply a separate LNG project led by British major BG. It was also possible that Kutubu gas would be used for petrochemical projects rather than LNG, he said.
LNG and petrochemicals would offer greater medium and long-term value and growth potential for both Oil Search and PNG than the pipeline could have, according to Botten.
Oil Search expects to make a decision on how to develop these fields by the middle of this year, he said.
In a separate statement, AGL Energy said it believed the PNG gas project was still potentially viable in view of eastern Australia’s long-term demand for natural gas
“AGL will be working closely with all parties in the project to extract maximum value from its gas reserves which it acquired for a very modest consideration. The future developments will include a range of other gas project concepts including LNG and petrochemicals and we expect to make a decision on these projects later this year."
The PNG gas project participants are Australian-listed Oil Search, US-based ExxonMobil, PNG’s MRDC and Japan’s Nippon Oil Exploration.
