Downstream turbulence: The refining and retail segments have undergone significant changes


Although much of the focus of the energy sector remains on the upstream segment and its investments, Papua New Guinea’s downstream segment has been making waves over the past few years. Both the refining and retail segments have undergone significant changes as members of the old guard have bowed out and new, dynamic players have jumped into the market with high ambitions.

Until very recently, Singapore-based but PNG-focused oil and gas company InterOil controlled a dominating share of the domestic wholesale, retail and aviation petroleum product distribution business in PNG. This was largely the result of years of consolidation of existing infrastructure previously held by large international oil companies, most notably the purchase of BP’s entire commercial and retail distribution assets through BP PNG in 2004, and the subsequent acquisition of Shell PNG in 2006. After the 2006 purchase, InterOil supplied the country with approximately 70% of its refined petroleum products and has maintained a strong presence in retail markets .

New Player

InterOil was content to hold a dominant position in the fuels retail sector in the ensuing years, controlling both the largest network of petrol stations across the nation as well as operating the only refinery, Napa Napa, located near Port Moresby. However, in June 2014 a new player entered the market when Singapore-based Puma Energy bought out InterOil’s refining and downstream business for $525.6m. This venture immediately established Puma Energy as the largest company in downstream petroleum distribution in PNG, with a geographic footprint of assets covering all market sectors, including 517,000 cu metres of storage capacity, a sales and distribution presence at 11 airports, and a network of 50 automobile petrol retail sites, both branded and independent. The firm has expanded its offerings further by becoming the first local supplier of bitumen as well as adding another 86,000 cu metres of storage capacity in 2015.

Big Cat

Puma Energy, which has been expanding throughout both Asia and in other regions such as Africa, is a privately held company with the largest two shareholders being Swiss-based international commodity trader Trafigura and Sonangol Holdings, which operates in the hydrocarbons sector in Angola. Trafigura acquired Puma in 2000 to manage its oil logistics assets such as pump stations and terminals, later selling a 20% stake in Puma to Sonangol for $300m. The PNG acquisition was also a key stepping stone for Puma Energy’s expansion in South-east Asia, as the company is targeting a foothold in Indonesia as well as building new fuel terminals in Myanmar. The purchase and planned expansion of the PNG assets are expected to be a focal point in this new regional expansion. “By upgrading the infrastructure we will turn the business into a major petroleum hub for the Asia-Pacific region, which will bring many important opportunities to PNG,” said Rob Jones, Puma Energy’s COO for Asia-Pacific and the Middle East, at the time of the acquisition. “Under our expansion and improvement programme, Puma Energy will bring new services to PNG, such as bitumen, bunkering and liquefied petroleum gas.”

Not content to just run the country’s only refinery at its present capacity, In 2014 Puma went to work with expansion and upgrade plans at Napa Napa. The company announced a sweeping investment programme shortly after the purchase, intended to create a more modern and flexible refinery capable of processing all domestic crude oil and condensate. For the refinery, these improvements include upgrades to manage a wider range of feedstock while also recovering more gas oil and gasoline, with less fuel oil production, and boosting the facility’s sustainable capacity to 42,000 barrels per day (bpd), up from the previous levels of 28,000 bpd. A number of supporting investments were also laid out, such as the construction of a new 10-MW gas turbine electricity generation unit to capture the gas that is currently flared by the refinery, along with boosting storage capacity and introducing bitumen and bottled LPG into the domestic market.

This expansion adds another page to the already storied history of the well-travelled refinery, which began its days in the 1960s in Alaska, and includes some components from an Oklahoma facility operated by Chevron. The crude distillation unit operated there at a capacity of 32,500 bpd until 1994, after which the plant sat inactive until 2004 when it was dismantled and refurbished in the US and then transferred to Port Moresby for reconstruction and commissioning. After the refurbishment, which included the installation of all new heat exchangers, coolers, pumps, tanks and piping, the newly-renamed Napa Napa refinery was finally completed in January 2005.

Balance Of Trade

Despite the Napa Napa refinery, only a portion of the light, sweet crude produced domestically from the fields is processed at the refinery, leaving a significant amount of oil to be shipped out for processing abroad to destinations such as Australia and New Zealand. Conversely, the higher scales of efficiency gained in larger refineries abroad have also made it attractive for fuel retailers to import fuel from suppliers abroad, resulting in substantial imports into PNG. The value of petroleum sector imports was PGK492.6m ($168.2m) in 2015, compared to PGK607.8m ($207.5m) in 2014, according to Bank of PNG, the country’s central bank.


Fuel prices in the country are monitored and regulated by the Independent Consumer and Competition Commission (ICCC) in accordance with the Price Regulation Act, which allows for government market intervention for a limited number of critical goods. The wholesale and retail margin component of fuel prices are accordingly price-controlled by the body based on a number of factors, including international refined petroleum products prices, the kina-dollar exchange rate, international shipping freight rates, domestic shipping and road freight rates, excise duties, and the goods and services tax. In addition, an import parity price is factored into the price, with Puma Energy utilising the Mean of Platts Singapore price quoted to the company by its overseas suppliers as the basis of calculating the domestic prices. As a result, fuel prices vacillate in line with international fuel prices, as evidenced by the sharp drop in prices at the pump in early 2015 as global crude prices entered a freefall. The price of petrol declined from PGK2.92 ($1) per litre in January 2015 to PGK2.65 ($0.90) per litre in February 2016, a 9% drop from the price set by the ICCC. (Adipex)

Aviation Fuel Segment

With an increasing amount of visitors, air travel has expanded substantially since the PNG Liquefied Natural Gas (LNG) project began. More planes require more fuel and fuelling infrastructure, and Jacksons International Airport’s fuel provider Pacific Aviation Energy (PEA) has significantly expanded its capabilities in recent years. Prior to the influx of traffic catering to the ExxonMobil-led LNG endeavour, the airport made do with eight refuelling points around the airfield, but when take-offs and landings of large cargo planes spiked, PEA responded by adding an additional kilometre of underground pipeline and 22 additional fuel points. Now that these frequent cargo stops have been curtailed, the airport is still benefitting from the upgrades with more efficient refuelling capacity at the airport, particularly for wide-body aircraft which are arriving with increasing frequency. At the other end of the two-kilometre pipeline, the aviation fuel storage tanks are also now undergoing an upgrade, with two new 4.3m-litre tanks expected to be in place and operational by the end of 2016. This will bring the fuel reserve capacity to 34 days, representing a major upgrade over the previous capacity of just 500,000 litres of jet fuel in accordance with International Air Transport Association standards.

However, a shortage in foreign exchange linked to declining commodity prices has led to increased fuel prices, which in turn has affected the aviation industry adversely. “The lack of foreign exchange is creating a negative situation within the fuel industry, by which the refinery has been forced to increase the price of fuel and commercial customers are passing on their major clients,” Henry Elias, general manager at PEA, told OBG. “As a result, Air Nuigini, for instance, would rather refill in Cairns or Brisbane instead of Port Moresby, which will allow them to save as much as 10% on fuel costs.