This morning’s Australian newspaper reported that Santos was holding talks with PNG project operator ExxonMobil, the PNG Government and the country’s biggest oil and gas producer, Oil Search.
Santos moved quickly to respond to this speculation.
“Santos Limited advises that it is not presently a participant in the PNG Gas Project, and it has not made any decisions relating to the PNG Gas Project. If and when any decisions are made that require disclosure, Santos will make the necessary announcements,” the company said in a prepared statement.
However, the brief statement did not include any denial that negotiations were taking place.
Santos holds 31% equity in the Hides gas field – a large field crucial to the pipeline project with a contingent resource of 370 million boe. Last month Hides finally moved to the front end engineering and design (FEED) stage after a seven-year wait.
Santos pulled out of the original PNG gas project as it believed the project would undercut the value of its Cooper Basin gas assets. But the Cooper Basin is now in natural decline and the market demand for gas has risen. In addition, the Cooper reserves are believed to be now almost fully contracted, so they would not be put at risk by a new project.
The Australian reported that Santos officials declined to comment on speculation it wanted to process PNG gas at its Moomba plant in the Cooper Basin, using it as a hub to deliver the gas to the key markets of Sydney and Melbourne.
Using Moomba would reduce the costs of PNG gas processing by using established infrastructure and would avoiding ‘country risk premiums’ involved in building a plant in PNG. It would also extend Moomba’s life beyond existing contracts.
But Oil Search has an option on some of the gas, which it is hoping to use in downstream operations based in PNG, and the PNG Government would probably object to offshore gas processing, The Australian reported.
At this stage, the PNG Gas Project’s only markets are Queensland and the South Australia’s Olympic Dam project, but officials said customer agreements, possibly in Sydney and Melbourne, could be signed before the FEED studies were completed in early 2006, according to The Australian.