Reducing reliance on energy imports and addressing the shortage of power is major goal for Papua New Guinea. To this end, the National Executive Council approved a draft of the PNG Natural Gas Policy White Paper in April 2018, which seeks to better manage the growing oil and gas industry, while deriving more benefits on the domestic front.
In line with these plans, renewable energy will also form part of the overarching plan to address local power shortages, with a number of hydropower and biomass projects in the pipeline.
While major energy projects have bolstered the nation’s current account through the export of hydrocarbons in recent years, PNG still imports large quantities of oil and gas to satisfy local demand. To curb the need for imports, PNG’s government has committed to utilising more of its gas reserves for domestic consumption as part of broader goals to bolster energy self-sufficiency, support local industrialisation efforts and promote electricity provision in rural areas. The white paper provisions seek to address these issues through legislating policies on domestic market obligations (DMOs), export market management, local content requirements, third-party access to gas infrastructure, gas revenue management, as well as health, safety and environmental protection.
Indeed, at the 2nd PNG Petroleum and Energy Summit held in the Port Moresby in March 2018, the government announced its commitment to making DMOs compulsory in future development agreements and a key pillar of the new PNG Natural Gas Policy, which will form the basis for negotiations of future projects within the oil and gas sector.
Addressing the opening session at the summit, Fabian Pok, the minister for petroleum and energy, announced the policy is being formulated in line with the Alotau Accord II signed in August 2017. The accord is a coalition agreement which seeks to maximise benefits for local communities. According to Pok, the white paper sets out the government’s vision, its plans for implementation and a legislative framework aligned with global best practices.
While the existing Oil and Gas Act contains a clause regarding domestic gas utilisation, it is often criticised for not creating sufficient in-country value. These policy changes are expected to apply to all new gas projects, including proposed developments that have yet to be issued with licences, such as the Pasca A gas condensate field, the P’ynang gas field and the Elk-Antelope fields.
As of August 2018 the exact requirements related to the percentage and duration of the DMO requirements were still unknown. “The status of the new gas agreement is a hot topic. It will stipulate the rate of gas that needs be reserved for the local market and what the country will get in return,” Peter Botten, managing director of local firm Oil Search, told OBG. “PNG has enough gas to meet domestic demand, but does not have the funds or means to utilise it in the local market, and this situation is not very likely to change any time soon,” he added.
As domestic gas supplies will be prioritised for power generation to address the country’s frequent energy shortages, new opportunities are emerging for public and private cooperation. State-owned oil company Kumul Petroleum Holdings and Oil Search teamed up to form NiuPower and NiuEnergy in 2016, with the former focused on domestic power generation and the latter focused on domestic gas distribution. The companies are expected to work together to create a viable domestic gas market by 2021, with NiuEnergy acting as a standalone business barred from participation in any kind of upstream business. The joint venture will also have the financial credentials to be a customer for liquefied natural gas (LNG) export projects as well as a local aggregator that can offer manageable terms to domestic consumers. NiuEnergy’s initial project will be to supply LNG to NiuPower for the 58-MW power station at Port Moresby by the first quarter of 2019. The $100m power station is located adjacent to the PNG LNG facility, and is set to provide electricity at a lower cost than any other thermal generation plant in PNG. While still in its infancy, the creation of a domestic gas market and supply chain could significantly increase efficiency and reduce market prices. At the same time it will enable government, upstream developers, NiuEnergy and customers to collaborate on an efficient distribution system.
While the creation of a domestic gas market should act as the primary driver of industrial development, establishing a robust value chain will take considerable investment and time. Regardless, the benefits from replacing fuel imports over the long-run should far outweigh the initial financial costs.
“We are using our abundant supply of natural resources,” Carolyn Blacklock, acting managing director of PNG Power, told OBG. “In the past, it was thought that DMOs were needed just to obtain gas, but we have debunked that myth. The next step is to go for utilities. While you can have a gas obligation, it will always depend both on the availability of cheap gas and the level of domestic demand,” she added.
Despite the country’s wealth of hydrocarbons, PNG continues to embrace green energy. Hydropower contributes the largest share to the domestic energy mix, with 237 MW of installed capacity in 2017. This is set to rise further in the coming years on the back of large-scale hydropower greenfield and brownfield projects. Such developments include PNG Power’s 80-MW Naoro Brown hydroelectric plant being constructed under a public-private partnership, an 180-MW extension of the Ramu power station and the 3-MW Divune hydropower project in Oro Province. These projects will contribute to PNG’s Development Strategic Plan 2010-30, which aims to quadruple installed capacity from 500 MW to 1970 MW. Hydropower is planned to account for around 57% of this total installed capacity, rising from 215 MW to 1140 MW. Under the plan, other renewables will account for 380 MW, or 19.2% of total installed capacity, while diesel usage will be declined from 160 MW to 30 MW by 2030.
Biomass initiatives have also gained traction, with Oil Search’s PNG Biomass project set to enhance PNG’s investment profile. After lengthy planning, a competitive tender and engagement with landowners, the project in the Markham Valley of Morobe Province completed its front-end engineering and design phase at the end of 2017. Under a 25-year power purchase agreement signed with PNG Power and approved by the Independent Consumer and Competition Commission in December 2015, the project is expected to commence first dispatch in 2020. The 30-MW biomass-fired power plant will provide a source of affordable, renewable and low-risk energy to the Ramu grid. According to Tim Siegenbeek van Heukelom, social impact and performance specialist at PNG Biomass, the project includes 16,000-ha eucalyptus tree plantation, with more than 20m trees planted over three to five years. Wood chips from the trees will provide the fuel for the power plant. As of the first quarter of 2018, the project had invested over $50m, and is already benefiting landowners. The project is also expected to create some 500 local jobs over the 25-year period, while reducing carbon emissions by 4m tonnes.
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