It’s certainly an exciting time for the project as it moves towards project sanction in the third quarter and financial close in the fourth quarter.
Once these events take place, activity will take off. Construction tenders are expected to be released immediately following project sanction – before the end of 2006 – with the aim to have actual construction up and running as early as possible in 2007.
The first quarter of 2007 will see the ordering of pipe and other major equipment underway, with construction of basic infrastructure to commence as soon as the wet season ends.
However before any of this can take place a number of critical milestones need to be achieved.
In an important decision for project stakeholders, the Australian Competition and Consumer Commission (ACCC) has issued a determination authorising joint marketing in Australia of gas from the proposed PNG Gas Project.
Authorisation has been granted to ExxonMobil, Oil Search, the Mineral Resources Development Company and AGL for 16 years, which will allow them to agree on common terms and conditions, including price, at which they will offer gas for sale to potential customers.
Meanwhile, in an important related development, the Energy Legislation Amendment Bill 2006, which provides the framework for two new incentives for investment in new natural gas pipelines, has been introduced into Federal Parliament.
The first incentive will allow proponents of new pipelines to seek a full exemption from regulation under the gas access regime for the first 15 years of operation.
The second permits an exemption from price regulation for proposed international transmission pipelines delivering foreign gas to Australia.
In introducing the legislation, Federal Resources Minister Ian Macfarlane said “These incentives are about cutting the regulatory burden, to make Australia’s energy market a more attractive place in which to invest. They will grow our energy market while building our security and diversity of energy supply.
“It is absolutely critical that investors can get regulatory certainty, in a clear but light-handed fashion, and these changes will go a long way towards helping projects such as the PNG Gas Pipeline get off the ground.”
The Australian Pipeline Industry Association (APIA) welcomed the legislation, with APIA Chief Executive Cheryl Cartwright noting that the possibility of a 15-year regulation-free period for specific gas pipelines was a step towards encouraging investment in gas transmission pipelines.
However, Ms Cartwright noted that given that gas transmission infrastructure is private sector investment which is made over a very long term, APIA would have liked to have seen the proposed regulation-free period extended to at least 20 years.
And closer to the site of the project, Oil Search Chairman Brian Horwood has provided a positive insight into the status of the pipeline and PNG Gas Project, noting that “There appears to be ample demand for gas in Australia that should see this project move through to project sanction later this year.
“The focus is now to ensure all government and landowner agreements are made to enable fair licence equity and benefits distribution to all key stakeholders in Papua New Guinea.”
While Mr Horwood has noted that while the PNG – Queensland Pipeline still faces a number of obstacles in getting local PNG landowners and the Government to agree on how to distribute the financial benefits the project is set to provide, Oil Search is confident that the support required to bring the project to reality will be secured.
And finally, talk within the industry has been dominated by news pertaining to the AGL-Alinta merger, which has been recently finalised.
At this stage, AGL’s stake in the pipeline is being retained by the newly formed AGL Energy. This is the one infrastructure asset of the two groups that AGL has retained under the Merger Implementation Agreement – all other assets belonging to the two companies be held by Alinta once the merger is finalised.
However, Alinta CEO Bob Browning has not ruled out the possibility of Alinta one day taking a stake in the project, saying “In its formative stages, it’s probably better for AGL to have the PNG – Queensland Pipeline. Once it’s up and filled to the 30-50 per cent level, then it starts to get categorised as an asset that would fit more appropriately with us. We’ll certainly keep an eye on it.”
Involvement in the project for new potential stakeholders continues to remain a hot topic within the Australian pipeline industry, with speculation continuing to mount that often-rumoured potential partner Santos continues to move closer to finalising its involvement in the project. Analysts have noted that Santos being involved is particularly important to the Gas Project and Pipeline, given its current involvement in the area through the Hides gas field – the main gas field that will support the Gas Project – and subsequent understanding of the resource in place.
The PNG Gas Project is currently expected to commence gas sales into Australia in 2009, following construction of the pipeline. The initial capital costs of the project are likely to be approximately $4 billion and the capacity of the project could be as high as 300 PJ/a.