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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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The Bad Gas Deal That Brought Down A Prime Minister

Embattled Papua New Guinea (PNG) Prime Minister Peter O’Neil resigned on Wednesday, putting the country’s LNG development and a preliminary deal with French oil and gas major Total in doubt. O'Neill drew criticism for his deal worth $13 billion with Total and U.S. oil major ExxonMobil to extract, pipe and ship liquefied natural gas (LNG) overseas from the South Pacific country.  After the signing of the deal, O'Neill's government narrowly avoided a no-confidence vote by adjourning parliament for nearly a month. However, on Sunday he announced that he would resign after the PNG Supreme Court refused to hear the case immediately.

The preliminary deal would allow initial work to start on the project that would double the country’s LNG export capacity. Total’s partner Oil Search said the deal would allow the partners to start engineering and design work for a project to be called Papua LNG.

Total and its partners are set to make a final investment decision (FID) in 2020, targeting first production in 2024, according to an Oil Search release. The preliminary deal came as PNG pushes to not fall behind other major LNG producers that continue to ramp up production, including Australia which recently overtook Qatar, with a liquefaction capacity of 80 mtpa, to become the top global LNG leader. Papua New Guinea has to compete with important players such as the U.S., Canada, Mozambique and Qatar - which has a liquefaction capacity of 77 mtpa, and aims to increase that capacity to a whopping 110 mtpa by developing more gas resources at its prolific north field as well a building more LNG production infrastructure. Related: How Clean Is “Freedom Gas”?

According to Total, the Papua LNG project would have a name plate liquefaction capacity of 5.4 mtpa and consist of two LNG trains of 2.7 each. It would unlock more than 1 billion barrels of oil equivalent (boe) of natural gas resources. Exxon Mobil, furthering its new commitment to go long on LNG development, also planned to add a third train at PNG LNG, to be fed with gas from its existing fields and a new field later.

New beginnings

After the deal was reached in April, PNG Finance minister James Marape was the first PNG senior cabinet official to resign in protest, claiming the money would not go to ordinary Papua New Guineans, local firms or the regions. A similar deal in the last decade has failed to bring wealth to the impoverished South Pacific country where around 70 percent of people do not have access to reliable electricity. In the past, however, amid protests over gas deals, it appears that both Total and ExxonMobil should have learned to exercise more due diligence to ensure not only a fair deal but to also implement a public relations strategy to get the Papuans behind the project.

On Thursday, the PNG parliament appointed former Finance Minister James Marape as its new prime minister. In his speech after his election on Thursday, Marape said he would make fixing the economy, which he described as “bleeding and struggling”, his priority and issued a warning to foreign companies working in PNG. “We will look to maximizing gain from what God has given this country from our natural resources. This government is all about putting our country in the right place and taking back our economy … We don’t need foreigners to come in to take advantage of our forestry,” he said. Experts claim O'Neill's resignation and the political turbulence in PNG could delay or even put an end to resource projects that many claim have benefited only Port Moresby and the country's connected elite.

By Tim Daiss for Oilprice.com

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