THE planned $3.5-bn gas pipeline intended to connect Papua New Guinea to Australia has suffered a setback when Australian Gas Light said that it might suspend design work because of a lack of firm customers and rising costs. The decision hit the shares of Oil Search, the Australian-listed Papua New Guinea oil and gas producer, who is the principal owner of the natural gas reserves that were to go into the pipeline from 2009.
AGL, responsible for designing the pipeline together with its Malaysian partner, Petronas, has committed to buying up to 40% of the gas. It said that it has written-off Aus$25.1 million, reflecting what it has spent on front-end design work. The company said most of the budgeted work had been completed and that it was deciding whether to suspend the remaining Aus$10 million dollars’ worth of work.
However, Paul Anthony, the managing director of AGL, said that he believed a viable project to bring gas from Papua New Guinea to Australia could still be developed, and analysts said that the pipeline could still move forward. “The project is now looking a bit shaky, but it’s certainly not the death knell,” Jason Mabee, an analyst at ABN Amro, is reported to have added.
Oil Search said it believed AGL’s move was designed to force potential customers and new owners to sign-up to the pipeline in a bid to kick-start the long-delayed project. The pipeline, which has been in various stages of planning for nearly a decade, would provide an essential new source of gas for Australia’s heavily populated eastern states, where the main gas source, the Cooper Basin, is in decline. Market speculation has focused on the Australian oil and gas producer Santos taking an estimated 9% stake in the project, although Santos had no immediate comment. The energy retailer Alinta has also said it would consider owning a piece of the pipeline once customers were committed.
Exxon Mobil, operator of the pipeline and gasfields, is reported to have said it remained committed to developing Papua New Guinea’s gas resources, and that it was reviewing what the decision by AGL and Petronas meant for the pipeline. “This decision is regrettable but clearly reflects the significant cost pressures which have been impacting the project,” said Anna Schulze, an Exxon Mobil spokeswoman.