PNG Government making Poor P'nyang Gas Agreement Signing

Commentary  By Kepsei Puiye - Former Acting Secretary of Petroleum & Energy Department 

[Papua New Guinea]  is blessed with some great minds. We must use them wisely in building our nation and effectively insulating it. We don't have a second country. 

I am literally hurt with the news of the signing of the P'nyang Gas Agreement ... We are creating mess after mess. When will "people" in Parliament learn from past mistakes???

 PNG Government making Poor P'nyang Gas Agreement Signing 

Below are some important facts.

(1.) PNG LNG Project: Gas Agreement was signed in May 2008. 

Construction commenced in January 2010 and completed in April 2014. First LNG cargo exported in May 2014.

After almost 13 years of the signing of this project's Gas Agreement and 8 years of LNG exporting, two other foundation gas fields which are part of the PNG LNG Project and included in the Gas Agreement, namely Angore PDL-08 & Juha PDL-09 are not even developed to date yet, therefore are not connected to the main Hides Gas Conditioning Plant. These two key gas fields which are an integral part of the Foundation LNG Project are not producing any gas. 

It would be a serious breach of Agreement and Law if these two fields are shelved for another 15-20 years in order to expedite the early monetization of the P'nyang gas field using the PNG LNG facilities, including the 700KM gas pipeline and the LNG Processing Plant at Caution Bay outside Port Moresby.

P'nyang is not part of the PNG LNG Project. You can't push for P'nyang's early access to PNG LNG Project facilities ahead of Angore and Juha. The legality of this is questionable. 

(2.) PAPUA LNG: Gas Agreement signed in April 2019.

After almost 3 years of signing the Gas Agreement, there is almost zero activites on the ground, particularly in relation to the fundamental milestone activies. 

FEED is not completed. This is a milestone activities. ExxonMobil and Oil Search, two main beneficiaries of the PNG LNG Project, are also major equity owners of this lucrative Papua LNG Project. 

The Government should be directing ExxonMobil and Oil Search, including TOTAL (Operator) to fast track the early construction and commercializing of the Papua LNG Project. Stop pushing for P'nyang when Papua LNG Project is not moving at all. 

How can the Government sign another Gas Agreement with the same players when they are sitting on the Papua LNG Gas Agreement for 3 solid years after signing it. Is this not a contemptuous act? 


PNG LNG Project facilities and infrastructure are owned by the PNG PNG Project. The Hides gas field alone is capable of adequately supplying feed gas to the PNG LNG Project in the next 20 plus years it hold a world-class gas resource, and blended with rich condensates. There is no capacity in the 34 inche diameter pipeline (Hides to Kikori) allow for third party gas to come on board now and in the next 15-20 years.

We still don't know when Angore and Juha will come on board in terms of their gas accessing the gas pipeline they own. I can't see the legal and commercial rationale for a third party gas field like P'nyang to leapfrog the queue and early access the PNG LNG facilities and gas pipeline when Angore and Juha continue to wait in the queue. 

Is this legally correct? Why would Angore and Juha "beneficiaries" benefit from PNG LNG Project since they are not contributing their gas to the PNG LNG Project? Yes, they can benefit because PNG LNG is an integrated project and all parties from all licence and fields can benefit but the fact that these two fields remain undeveloped even after 8 years of LNG exporting simply means that the PNG LNG Project is operating outside of the spirit of the Gas Agreement signed in May 2008. 

At Caution Bay, it appears to me that technical, commercial and regulatory parameters will become very complex, tricky and messy. Both Papua LNG and P'nyang gas will come into the same location and discussions between/amongst parties are converging towards a common facilities sharing arrangement. Fees will be charged. New infrastructure will be built.Depreciation rules will be applied on existing facilities. Do we really understand the commercial and technical details in terms of cost movements and value creation, allocation and transfer? Are we 100% sure TOTAL is ready to construct Papua LNG Project next year as announced yesterday at Government House? I seriously doubt so. 

Why? FEED not completed. Development Forum not done. PDL not yet grant by Minister. 

In the absence of all these, the Government thinks it is ok to sign another Gas Agreement with the same players knowing too well that project construction will start 6 years down the line or even 15 years later. 


We are told that P'nyang gas project will commence construction in 2028. That will be 6 years after signing the Gas Agreement. First gas production is anybody's guess. This doesn't make technical, regulatory and commercial sense. In comparison, PNG LNG Project commenced construction in less than one and half years after signing the Gas Agreement. 

If P'nyang gas is allowed to have early access to PNG LNG gas pipeline and facilities ahead of Angore and Juha, then legally, P'nyang must pay a premium. Apart from paying tolling fees, it must also pay a premium for jumping in front and pushing Angore and Juha back in the queue. Have we captured this in the Gas Agreement which was gleefully signed yesterday?? 


Did yesterday's Gas Agreement carefully consider and make provision to legally transfer majority or full ownership control back to the State in order to avoid the current messy and costly Pogera mine scenario? Taking back PNG has to translate into some creative policy initiatives and we should take major bold steps now to address the ownership and control issue. 

I have repeatedly emphasized this point over and over and people in authority are completely ignoring it. Look at the shameful position we went through recently in Pogera. 

We must introduce policy and Laws which will clearly stipulate the exit points of international investors in major world-class petroleum and mining projects in our nation. For example, the PNG LNG Project entailed a capital outlay of over US$19Billion. The net worth of gas and condensates in our six fields combined is far too high and in hundreds of Billions of USD. After the investor recoups all its investment cost and makes a handsome return on that investment, our Law should recognize that and provide for an early exit. An international investor can't benefit from day on until the last day the resource is completely depleted. They are walking off with a lion's share in all our projects. EM SAMTING BLONG OL???


The excuse given yesterday during the Gas Agreement ceremony that the world will no long favour fossil fuels is bulshit. This is a well marinated excuse fitting for feeding the gullible. 

Political leadership must have Vision. Don't destroy our nation.

It is true that fossil fuels will phase out but not in the next 30 plus years. Technology is moving fast in promote green energy, including hydrogen fuel. We know this. 

But if fossil fuels are going to phase out tomorrow, why is Papua LNG not constructed quickly instead of procrastinating it after 3 years of signing the Gas Agreement? And why is P'nyang scheduled to commence construction after 6 years. Why are we forever willing to shallow lies after lies from foreigners????

If the proponents of the P'nyang gas field think that fossil fuels (including natural gas) are going to be phased out soon, has the Government considered other creative ideas or development concepts in order to better utilize our gas, including producing gas-fired electricity at the lowest possible cost and cascading the energy cost benefits down the entire busines value chain? Can this not be a correct step to take to take back PNG?

At the current power consumption rate, the P'nyang gas field alone has the capacity to power our entire nation for hundreds of years. For example; half a trillion cublic feet of gas, which is a puny 0.1% of total reserves in Pnyang, is more than enough gas to produce over 300MW of power to electrify our nation for 100years. And we can use the same gas by utilizing advance technology to generate power at the lowest unit cost and attract large industries such as petrochemical industries, aluminum smelting/manufacturing, textiles, etc.. 

Why are we cooking and celebrating over raw and cheap deals in a land of milk and honey when we are supposed to rise up as intellectuals and talk real business with the best out of the best in the international oil and gas business????

And I seriously think we are not investing enough quality time in viewing the world from an unconventional and concealed vantage point. We are messing up everything, including our wealth deeply buried in raw resources. I deeply abhor this madness. 


The 63/37 deal purportedly in the State's favour is akin to a fake wedding ring for the host nation. The real value lies not in percentages: real value lies in real numbers in accounting. Have we modeled the economics properly? 

The heavy deductions in some existing projects are frighteningly unbelievable. All kinds of deductions, unexplained costs, often not itemized, significantly drains the host State's total value. With depreciation provisions added, the investor takes home far too much, way above what they initially invest in the project. 400-500% more than their initial investment cost. This very issue is the centre of economic attack where State is losing value from its so-called world-class projects. I have serious issues with Depreciation Rules. 

Where does the State have the money to purchase additional 10-12% equity from the P'nyang project? Does this mean State will borrow at high and additional cost to easily leverage ExxonMobil and JV Partners' financing of this project? Cost for equity at over 32% is going to be over US$3Billion and with Papua LNG added within short time intervals, the total equity cost for the State will be over US$6Billion. With interest added, the total Bill will be way high. 

In my view, Additional Equity to State must come at zero cost and timing of this is critical. And there is a way to accomplish this very easily. We not thinking like owners of the asset on the negotiation table. 

8. The Licence Status

Was not PRL3 a subject of serious default and compliance issues? This issue gave the State a very strong advantage to negotiate for a much better deal. Hope we did. But knowing these facts and yet deciding to pay Billions to the defaulters of an asset we already own is a dead deal. Common sense doesn't exist here.

About the writer. 

Mr. Kepsei Puiye is the  Former Acting Secretary of Petroleum & Energy Department of Papua New Guinea.  

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