Interview: Wapu Sonk, Managing Director, Kumul Petroleum
How do trends in the global liquefied natural gas (LNG) market affect sector development?
WAPU SONK: The LNG market in Papua New Guinea has slowed down because of global oversupply. PNG nonetheless produces top quality LNG, and this is being recognised throughout Asia, where most of the demand is located. Our key partners are Japan, China and Taiwan, and they continue to buy LNG on both long-term and short-term contracts. Despite an overcrowded market, we have been able to get a good price for our products. We expect the broader LNG industry to soften for the next two to three years, but demand after that looks promising. However, we do see a lot of competition coming from other markets, for example Mozambique, Australia and USA. Our current target for production growth is set for 2024, but within the context of global competition it will likely be reached sooner. To achieve our goal we are preparing to start the next phase of the major LNG project in 2019, and while there is a lot of competition, the regional market looks very promising. Indonesia is starting to import energy and has already shown interest in buying gas from PNG, Malaysia has also built new LNG terminals, while Australia – our main regional competitor – has high domestic gas prices and faces contractual limitations. We are therefore optimistic about the future.
What steps are being taken to bolster self-sufficiency and connectivity?
SONK: PNG is blessed in many ways. We have a lot of gas fields, sunlight, geothermal potential, wind and water sources for hydropower. Across the whole spectrum of energy possibilities we look for ways to allow PNG to benefit from the wealth of its natural resources. Only 13% of the population has access to electricity, and the government has set a target of boosting connectivity to 70% by 2030. This ambitious target needs an equally ambitious strategy. The government is taking a necessary step by creating a new energy ministry that will deal with energy quotas and distribution. It is a business-friendly approach that aims to improve transparency and sector efficiency.
However, the establishment of a ministry is not enough in itself, and strategic sectors in the country require better access to power. For example, education and health care, both underdeveloped areas, are necessary for a healthy economy and need a more reliable power network. The development of these sectors will also create other business opportunities.
Where do you see new potential for foreign and domestic investors in PNG’s energy sector?
SONK: We want to learn from past experiences and make sure the country benefits more from its natural wealth, thus industrialisation will be an important objective. As long as we have the right policies for third-party access, domestic obligation and national content, investors will be interested. However, actual foreign direct investment will also depend on the availability of infrastructure and the mobilisation of resources. We first need cheap power to create the right incentives, which can come from gas and hydro. Cheaper energy and reduced tariffs will trigger industrialisation, allowing the establishment of a fully integrated energy supply chain. We are also looking at ways to increase exploration activities. The fiscal system we have is attractive, but we need a new strategy to ensure development and progress. We currently are promoting the Western Pipeline project, which should aggregate all the gas fields in Western Province into a single pipeline to Port Moresby. This incentive makes it more economical for small and medium-sized exploration firms to explore for more gas fields in the region. A number of interested parties are already working on this by uniting their licences and discoveries, which will give them a stronger position to capitalise on upcoming oil and gas infrastructure constructed by bigger companies like ExxonMobil with access to the LNG market.
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