Interview: Wapu Sonk
What role could an independent state-owned oil company play in the oil and gas industry?
WAPU SONK: Papua New Guinea joining the club of oil producing nations as recently as the early 1990s has allowed the country to examine and quickly learn from the critical success factors of other state-owned oil companies, as well as their contribution to socio-economic development. We have paid particular attention to Petronas in Malaysia, as the country has some similarities with PNG in terms of population size and cultural diversity, as well as Pertamina in Indonesia. In both cases we found that the common factors were political stability, a properly structured fiscal regime and the ability to make important decisions without undue bureaucratic hurdles. We feel that PNG needs to take a similar approach to make the most of its hydrocarbons assets. A streamlined national oil company could play a very important role for the future generation of Papua New Guineans, especially with respect to the creation of and contribution to a sovereign wealth fund.
Which geological area will best support growth?
SONK: PNG’s energy map is divided between the Western Papuan Basin (WPB), where ExxonMobil, Oil Search and Talisman operate their concessions, and the Eastern Papuan Basin (EPB), currently developed by the Total/InterOil joint venture. While the WPB has yielded the most important projects to date, initial geological studies indicate the EPB perhaps has even greater potential, and there is a lot of excitement about developing what looks to be a world-class hydrocarbon province. From a logistical point of view, the EPB is also closer to the markets and river systems that characterise that part of PNG. This means that equipment can be delivered by barges rather than airfreight. This will help to significantly reduce capital expenditures, creating an additional incentive for future projects.
Considering these new developments and the possible expansion of the existing facilities run by the ExxonMobil-led consortium, we expect at least three additional liquefied natural gas (LNG) trains to come on-stream in the near future, making PNG one of the most active producers in the region and beyond.
How can the country benefit from having two oil and gas majors operating side by side?
SONK: There has been a strong internal debate over whether it would have been easier for the government to hand the new concessions in the Gulf Region to ExxonMobil, which had just completed the country’s first LNG project. Numerous analysts agreed that it would have made more sense commercially, as an accelerated project would have needed to use part of the existing facilities and would likely have delivered an additional train in a shorter amount of time with less capital expenditures and logistical complexities.
However, the government ultimately made a long-term decision, and arguably a more sustainable one, by inviting another oil major. This has brought greater competition to the local market, creating potential for new synergies to emerge in an entirely different corporate culture. It also keeps us from putting all our eggs in one basket. This may sound like a simple way to look at a very complex industrial venture, which to some extent will determine the future of many Papua New Guineans, but I think the government made the right decision. The role of the government should be that of a regulator, establishing the country’s priorities and objectives while fostering a level corporate playing field.
Ultimately, we are taking a holistic approach, focusing on the best model of development for the future. The sudden fall in oil prices has taught us that we need to diversify to better absorb shocks. To that end, developing a strong petrochemicals industry could be an appropriate measure to implement. As a lack of energy continues to be one of the biggest constraints to industrial expansion in PNG, ensuring that a significant portion of gas production is allocated for local consumption – especially for power generation – will be important for future industrial and economic development.
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