Under the jungles and wetlands northwest of Port Moresby, the capital of Papua New Guinea, the natural gas from Elk and Antelope fields has been quietly buried for billions of years, and people on the ground have been waiting for it for an unexpectedly long time. This project signed an agreement as early as 2018 and has since gone through a series of twists and turns, including government renegotiation of terms, the impact of the pandemic, team withdrawal and restart, pushing the production schedule back and forth. On September 7th, a statement from Total Energy marked a turning point in the wait: the Papua LNG project has secured multiple key contracts and commercial milestones, with only the final investment decision remaining.

Cut costs by 4 billion

Money has always been the biggest obstacle to this project. The project has now completed the bidding process for engineering, procurement, and construction contracts, and the award proposal is being prepared for submission to the joint venture partners for approval. More importantly, through design optimization and re bidding, the project has achieved nearly $4 billion in cost savings since 2024, with capital expenditures reduced to approximately $14 billion. Cost reduction relies on several combinations: optimizing the upstream condensate oil development plan, sharing and collaborating with the already operational PNG LNG project; At the same time, expand the scope of Asian engineering general contractors, re tender engineering packages, and use supply chain competition to lower prices. Economic improvement is necessary for the confidence in financing to keep up.

Mobil takes over operations

The most significant change in this announcement is that the project operation rights will be handed over to ExxonMobil. ExxonMobil is currently the operator of the PNG LNG project, taking over Papua LNG. The synergy between the construction and operation phases is worth looking forward to. Along with the transfer of operating rights, Total Energy will sell 9.1% equity of the project to its partners, retaining 20% after the sale while maintaining its LNG purchase share unchanged. After the equity adjustment is completed and the Papua New Guinea government exercises its repurchase right, the expected equity structure is as follows: ExxonMobil holds 34.1% and serves as the operator, Total Energy holds 20%, Santos holds 21%, ENEOS Xplora holds 2.4%, and Kumul Petroleum Holdings and MRDC jointly hold 22.5%. Both parties stated that they will ensure a safe and efficient transition of operational rights, maintain continuity in project activities, government commitments, and stakeholder communication.

The sales end should be settled first

Whether large-scale LNG projects can obtain financing often depends on whether the gas is sold first or not. The Papua New Guinea government has completed the revision of the natural gas agreement, which was signed in 2019. This time, the updated budget and optimization plan are included, with the goal of ensuring the project's stable economic viability in a low cycle environment while maintaining the country's long-term financial interests. Sales side synchronous promotion: Total Energy will establish an LNG marketing joint venture with relevant entities in Papua New Guinea, represented by Kumul Petroleum Holdings, to jointly sell 2.4 million tons of the project's annual output of 5.6 million tons; As the buyer, Total Energy has signed a major LNG off take agreement with the seller, which will receive 1.5 million tons/year of LNG and be included in its global resource portfolio. A clear sales path is the key to enhancing the commercial certainty of a project.

It should be noted that the project is still in the stage of approaching the final investment decision and the FID has not been officially announced yet. There is still work to be done at each stage, including the approval of the EPC contract by the joint venture partners, completion of the handover of operational rights, implementation of equity adjustments, proper financing arrangements, and finalization of government and commercial documents. For Papua New Guinea, this project means an overall improvement in employment, local business opportunities, and natural gas industry capabilities; For the Asia Pacific LNG market, the added production capacity adjacent to Asian buyers is already scarce in the context of energy security and coal substitution. After eight years of long-distance running, Papua LNG has finally reached the starting line.Editor/Yang Meiling