Asia

Exxon to Build $15 Billion Gas Project for Asia


By Ben Sharples and James Paton

(Bloomberg) — Exxon Mobil (XOM) and its partners approved development of a $15 billion Papua New Guinea liquefied natural gas venture, the country's biggest resource project, to supply the cleaner-burning fuel to China, Japan and Taiwan.

Building will begin in 2010 after the companies complete agreements with their customers and financing arrangements with lenders, Irving, Texas-based Exxon, the largest U.S. oil company, said in a statement today. The project will likely award five construction contracts worth "several billion dollars" within two days, according to Oil Search Ltd., a partner in the venture.

Papua New Guinea's economy may double in size, Port Moresby-based Oil Search estimates. The plant is one of more than 12 planned in Australia and the neighboring South Pacific nation to meet growing Asian demand for less-polluting alternatives to coal and oil.

"We are seeing a move to gas," Peter Arden, a Melbourne- based senior mining analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co. (JPM), said today. "China can't meet its energy needs. Countries are also trying to diversify away from coal."

LNG sales from the project will likely exceed $100 billion over 20 years, Tri-Zen International Ltd. consultant Tony Regan said in an e-mailed response to questions. The partners haven't given financial terms of supply agreements.

Dollar-a-Day Oil Search declined 1 percent to A$5.84 in Sydney today, compared with a 0.1 percent drop in the benchmark S&P/ASX 200 Index. Partner Santos Ltd., Australia's third-largest oil and gas producer, fell 0.5 percent to A$14.68.

Asian demand for LNG is driving the development of projects in the region. Chevron Corp. and Tokyo Electric Power Co. said Dec. 5 that the Japanese utility had agreed to buy LNG for 20 years from the proposed Wheatstone project in Western Australia.

Wheatstone is among the ventures that could make Australia "the Saudi Arabia" of the gas world, Energy Minister Martin Ferguson said today. The Tokyo Electric agreement may be worth A$90 billion ($82 billion), he said.

Chevron and partners Exxon and Royal Dutch Shell (RDS.B) approved construction of their A$43 billion Gorgon venture, also in Western Australia, in September.

Exxon and its Papua New Guinea partners will build a plant near Port Moresby with capacity to produce 6.6 million metric tons of the fuel a year. Gas will be piped 710 kilometers (441 miles) from fields in Papua New Guinea's highlands for processing into liquid form and transportation by ship to Asian customers. Fuel exports are due to begin by late 2013 or 2014.

The partners said they must sign off on agreements with customers and lenders. "We wouldn't be progressing this without a high level of certainty," Peter Botten, managing director of Oil Search, said on a conference call today. "We're extremely confident the remaining aspects will come into place."

Triple Exports The project will triple Papua New Guinea's exports and more than double its gross domestic product, Oil Search says on its Web site. The nation of 6.2 million, whose people speak more than 800 languages, has an economy of $8.2 billion, according to the World Bank.

About 40 percent of Papua New Guinea's population lives in poverty on less that $1 a day, according to AusAID, the Australian government agency responsible for managing overseas aid. The nation's economic growth was 6.5 percent in 2007 and 6.6 percent in 2008, AusAID said on its Web site.

The decision to build the plant comes as 15,000 delegates prepare for the second day of an international climate change summit in Copenhagen. Carbon-dioxide emissions from burning gas are about half the level from coal, Chevron said in September.

Global demand for LNG is expected to almost triple by 2030, Neil Duffin, president of ExxonMobil Development Co., said in today's statement.

Shareholdings Oil Search will hold 29 percent of the venture, Adelaide- based Santos Ltd. has 13.5 percent and Tokyo-based Nippon Oil Corp. 4.7 percent, the companies said today. Exxon has 33.2 percent. The Papua New Guinea government owns 16.6 percent and landowners 2.8 percent.

Tokyo Electric, Japan's biggest LNG buyer, completed an agreement to order 1.8 million tons of the fuel from the PNG venture annually for 20 years, Exxon said yesterday.

China Petroleum & Chemical Corp. last week completed a contract to buy about 2 million tons of LNG a year from the project.

Sale and purchase agreements with two additional Asia- Pacific buyers for the balance of the 6.6 million tons of annual LNG output are expected to be concluded by early 2010, Miles Shaw, Port-Moresby based spokesman for Exxon, said in an e- mailed response to questions.

Taiwan's CPC Corp. said June 23 it may buy gas from the venture. Talks have started to supply the fuel to Osaka Gas Co., Exxon said June 22.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; James Paton in Sydney jpaton4@bloomberg.net.

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