What have been the most significant developments in the energy sector over the last 25 years?
PETER BOTTEN: In the early 1990s Papua New Guinea was just starting to produce energy after many years of exploration. Kutubu was the first oilfield to make revenue, in 1992. At the time energy was a very young industry and almost all resources had to be flown into PNG, but it was also the start of a golden era of production, during which the country enjoyed significant exploration and the development of new fields. This benefitted local companies, including Oil Search. We started as a tiny company but became the largest investor in PNG’s energy sector through several key moves, including the purchase of BP’s upstream assets in 1998, which doubled our reserves; the merger with Orogen Minerals in 2002; and the acquisition of Chevron’s PNG assets in 2003, through which we obtained operatorship of all PNG’s oilfields and the Hides gas field in the highlands. These deals may have been smaller than subsequent liquefied natural gas (LNG) projects, but they were sufficient to move the sector forward.
The early 2000s saw firms such as ExxonMobil develop a high level of interest in LNG projects and Oil Search begin to consider gas. The PNG LNG project was sanctioned by the government in 2009, marking a milestone for the energy sector. The $19bn project started to make revenue in 2014, representing a real benchmark for the whole industry. Many thought it would not be possible, particularly since the project was being developed during the depths of the global financial crisis, and because the project realised the second-largest loan in history – in a country that was barely known to major investors.
How would you describe the long-term outlook for the energy sector in PNG?
BOTTEN: Substantial resources – mainly gas – have already been discovered in PNG. The future of the country’s energy sector depends on commercialising these fields. However, this can be expensive due to a lack of infrastructure and remoteness of these resource deposits. In PNG the commercialisation of resources can be a slow process that results in expensive delays. We recently drilled two wells for $120m-130m each, and it could be the case that this investment remains on the ground for 15 years. Due to these delays, local companies are diversifying their portfolio by investing abroad. Our project in Alaska, for example, is more predictable and has a shorter development timeframe.
While mining in PNG has its disadvantages, there are also some benefits. For example, the high operating costs in PNG are balanced by the availability of high-quality reservoirs that produce a lot of gas from just a few wells. PNG is also reasonably close to LNG buyers in Asia. Most importantly, infrastructure development remains key to PNG. The next LNG project will see a network of pipelines that will allow a number of other fields to be developed over time. This stands to benefit more than just one province or area as the network will cross borders. Advancing infrastructure is essential to guaranteeing maximum impact. There are also plenty of opportunities for downstream development in PNG. The petrochemicals industry shows a lot of potential, as does power generation, and it is up to PNG and its energy companies to connect the country. For its part, Oil Search has invested in a power station in Port Moresby and a biomass and solar power facility in Lae. This way we are reducing the cost of electricity and contributing substantially to the electrification of the country.
While investing in renewable energy sources fulfils corporate responsibilities, it is also a necessity for the changing social landscape. PNG’s population is growing, and more jobs will be needed in the future. Therefore, diversification of activities will be instrumental for the sector and the economy as a whole.
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