Boston, MA -- (SBWIRE) -- 08/14/2013 -- Rising interest in Papua New Guinea's gas potential is supporting investment from major upstream players. With the first liquefied natural gas (LNG) project, PNG LNG, due to come online in 2014, PNG is set to become a player in the global LNG market. The project may be just the beginning, with progress on the Gulf LNG project towards securing a major partner and Talisman Energy suggesting it may already have the resources to underpin a third LNG project in PNG. While the country's gas outlook is bullish, liquids will enjoy some upside from condensate produced in the PNG LNG project but the overall outlook is bearish as mature fields decline and exploration is geared towards gas.

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The main trends and developments we highlight for PNG's oil and gas sector are:

- First gas from the US$15.7bn ExxonMobil-led PNG LNG project could treble PNG's exports and boost its GDP by at least 20%. The project remains on track for first gas in 2014 and is 80% complete despite a 20% cost overrun. Exxon and Oil Search are continuing the hunt to prove the resources base to underpin the development of an additional train. We do highlight the increase in costs, which was slightly offset by a capacity expansion as a risk to the profitability of future projects.
- InterOil's Gulf LNG project, which has faced severe delays and near cancellation, continues to advance following a recent a deal that saw the government take a larger share and InterOil commit to finding a major partner to help it develop the LNG project. Unconfirmed reports indicate the winning bid to cooperate on the project was made by Shell, which has long been interested PNG's gas potential. Shell's participation in the project would significantly de-risk its outlook given the supermajor's proven capacity to manage such developments.
- Total's farm-in agreement with Oil Search adds a proven player to the country's upstream, and the French international oil company has already announced its intention to become the operator of an LNG facility and move ahead with a robust exploration schedule in 2013, including PNG's first shallow-water drilling campaign in a decade.
- With oil production falling from existing fields, the long-term outlook for liquids production is questionable. Some upside comes from condensate production as part of the PNG LNG project as well as from the Mandana discovery, but falling output elsewhere will make the recovery in volumes only a temporary development.
- PNG remains strategically located for exports to Asia and currently benefits from significantly lower development costs than projects in nearby Australia. This should help make PNG gas competitive, even as new projects come online across East Africa, Russia and elsewhere targeting the Asian LNG market.

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