November 2006 will mark ten years since an optimistic Steve Schneider, then Manager of Chevron’s PNG – Queensland Gas project, said “construction (of the pipeline) could start in late 1998, and be complete in the first half of 2001”. Some aspects of the project were vastly different to how the project stands today – costs were estimated at $2 billion, Chevron was still in charge of the project, and negotiating the place of PNG gas alongside a booming coal seam gas market was not the issue that it is now. But statements regarding the project’s timing, about when a final decision will arrive and when construction will start have accompanied the project since it was first conceived.

The project was envisaged a year prior to Mr Schneider’s statement when, in 1995, International Petroleum Corporation investigated producing gas from its Pandora field, offshore PNG, then transporting it via pipeline it to the Australian mainland. Chevron expanded this idea to include gas from central PNG, and the current model for the project involves construction of 3,800 km of pipeline to transport gas from PNG’s Southern Highlands province to Cape York, travelling through the thick tropical rainforest and limestone mountains of Papua New Guinea, along the seabed in Torres Strait for 650 km, then into Northern Queensland’s industrial area.

Throughout the late 1990s, Chevron negotiated gas sales agreements, pursued PNG Government approval and worked on route selection. The company also organised an EIS for the project; the document stood 15 cm high.

A major development for the project occurred in May 1998, when Chevron selected a consortium of AGL and Petronas to develop the Australian section of the pipeline. In April 1999, the companies announced that a sufficient level of gas reserves had been committed to the project for it to move into line-pipe procurement, detailed route preparation and refinement of the construction program.

In late 2000, final signing of finance and gas contracts was delayed while project developers awaited project clearance from the Australian Competition and Consumer Commission (ACCC). However, the project was granted interim approval from the ACCC to jointly market gas by the end of the year.

In early 2001, after numerous delays, there seemed to be little hope that the project would go ahead. By April, however, ExxonMobil had taken over from Chevron as project managers and recommenced gas sales negotiations in the middle of the year. Confidence continued to grow on the project, with Oil Search Managing Director Peter Botten commenting in The Australian “Exxon is committed. They are like the Queen Mary. It takes time to get them to speed up but try stopping them after that”.

The project received a significant boost in 2002, when AGL signed a gas term sheet agreement for the purchase of up to 50 PJ/a of PNG gas into Moomba over a 20 year period. However, AGL decided to withdraw from its agreement to purchase gas from the project in 2003, which delayed the project further.

However, things started to improve later in the year when a conditional agreement with Energex to purchase up to 180 PJ/a of gas from the project was negotiated. Among Energex’s customers would be Comalco’s alumina refinery in Gladstone.

Attempting to garner support for the project in 2004, PNG Petroleum Minister Sir Moi Avei said “There’s a myth that this project has been in the pipeline for a long time and everybody has lost interest. That’s the kind of skepticism and cynicism that drives away the market from looking positively and objectively at this pipeline project,” Sir Avei said.

In late 2004, this mood of cynicism appeared to be dissipating - conditional gas sales contracts with Queensland Alumina Limited (QAL) and CS Energy Limited were signed, which prompted the partners in the project to move the PNG Gas Project into Front End Engineering and Design (FEED). The contract for FEED work on the PNG Gas Project was awarded to Eos, a joint venture between WorleyParsons and KBR, and was completed in early 2006, and in May 2005 The AGL-Petronas Consortium (APC) awarded GHD the FEED engineering contract for the Australian component of the pipeline.

The project continued to take steps forward in June 2005 when, within the space of 24 hours, Alcan terminated its Gas Sales Agreement with the Blacktip Joint Venture for the supply of gas through the proposed Trans Territory Pipeline to Alcan’s Gove alumina refinery which is currently being expanded, and signed an agreement with Exxon Mobil for the transportation of gas through the PNG-Queensland pipeline.

Momentum appeared to be increasing in July 2005, when AGL confirmed it had once again committed to the PNG Gas Project and proposed PNG-Queensland Gas Pipeline, signing an agreement to purchase around 1,500 PJ of PNG gas over 20 years from 2009 and a ten per cent stake in the project.

But in October 2005 the rush of customers signing on to purchase gas from the proposed PNG-Queensland pipeline came to an end, with conditional buyer BHP Billiton deciding not to extend a conditional agreement to purchase gas from the project. BHP had planned to use the gas for its Olympic Dam site in South Australia.

The project continued to progress in 2006; in January, the ACCC issued a draft proposal to authorise joint marketing for PNG gas in Australia for 16 years in January this year.

In February, there was more good news for the project’s certainty when AGL sold the first gas from its share in the PNG Gas Project to power company Flinders Osborne Trading (NRG Flinders) in South Australia.

But the pipeline encountered another hurdle in June, when Oil Search confirmed that a final decision on the project, originally scheduled for mid-2006, would be pushed back until 2007. Then, in late June, the development costs of the pipeline reportedly blew out by almost $1.5 billion, prompting AGL to review its role and the pipeline’s route. Political problems in 2006 also shook the certainty of developing the project. In early August the PNG Government declared a State of Emergency in the Southern Highlands Province, and later confirmed the State of Emergency had been extended by two months.

Soon after, AGL announced its decision to scale back Front End Engineering and Design (FEED) activities on the Australian component of the proposed PNG-Queensland gas pipeline, citing a lack of committed foundation gas load. The company also stated that the project is unlikely to proceed under the current ownership structure. Speculation was rife that this move was designed to push Santos, long rumoured to be joining the project, to make a certain commitment.

However, in late August Santos remained firm, stating it would continue to consider purchasing PNG gas, but only if the purchase price was justified. Managing Director, John Ellice-Flint, said “In recent weeks we have observed significant increases in capital costs associated with the PNG Gas Pipeline.

“Our position on the PNG Gas Project is clear. Santos is keen to support opportunities to commercialise its share of Hides gas and liquids but we will only pursue opportunities that are robust and sustainable for all stakeholders – including PNG Government and landowners as well as our shareholders,” Mr Ellice-Flint said.

At the beginning of September, AGL said that the PNG-Queensland pipeline could still go ahead through incremental developments rather than as a large, rapid development, and Mr Anthony maintains that PNG gas could enter the Australian market in 2010 or 2011. However, with the pipeline’s turbulent history, it is impossible to tell what will happen next.