Exxon's giant LNG project fuels frustration in Papua New Guinea

A USD $19 billion Exxon-led Papua New Guinea (PNG) LNG project that liquefies billions of dollars’ worth of natural gas before it is shipped to Asian buyers, was supposed to be a game-changer for PNG, a vast South Pacific archipelago beset by poverty despite its wealth of natural resources. However, according to landowners, the World Bank, and the PNG government, promised taxes to the government, royalties to landowners and development levies to communities, have arrived well below Exxon’s own commissioned forecasts, if at all. The project employs nearly 2,600 workers, 82 percent of whom are Papua New Guinean and Exxon said it has invested USD $360 million to build infrastructure and pay for training and social programs.

 

Exxon, community leaders, and the government said distribution of royalties and benefits to the LNG plant site landowners started in 2017. Exxon said cash payments to individual landowners would depend on how many landowners were in a precinct and were just one of the benefits communities received.

 

The government admits it has made mistakes. PNG Prime Minister Peter O’Neill, who was part of the government but not the leader in 2009, said many of the disputes around PNG LNG stemmed from the way the government and Exxon proceeded with the project without first resolving landowner claims. “It should have been done before, it wasn’t only for Exxon and the partners but even the government at the time did not do the proper clan vetting, proper identification of the land owners - they allowed this project to go on without that,” he said.

 

ExxonMobil PNG Managing Director Andrew Barry told a mining and energy conference in Sydney in December: “We could not be more pleased to see how the benefits are flowing to the communities at the LNG plant site, to see how investments are being made in important infrastructure such as schools and health that demonstrates the process is a good one and it works.” Mr. Barry said Exxon was hoping royalties would begin flowing in the pipeline and upstream areas “in the not too distant future”.

 

PNG LNG was completed ahead of schedule and exported 8.3 million metric tonnes in 2017, compared to its anticipated design capacity of 6.9 million tonnes, according to the project’s website. Exxon does not disclose the project’s revenue or profits, but research house Morningstar estimates it has generated USD $18.8 billion in revenue for Exxon and its partners since production started in 2014.

 

According to analysis by consultancy Wood Mackenzie and Credit Suisse, the project’s break-even price of around USD $7.40 per million British Thermal Units (mBTU) compares favorably to an average over USD $10/mBTU for eight recent gas projects in the region.

 

The project’s contribution to PNG economy and government finances is less clear. PNG’s Treasury does not report project income figures, but government budget papers show tax revenue flowing from PNG LNG has been well below expectations. In its 2012 budget, the PNG government estimated it would receive USD $22 billion in revenue over the project’s life to 2040. In November, the government slashed its revenue forecast in half to USD $11 billion over the life of the project. It identified 11 tax concessions, which along with a drop in gas prices, amounted to hundreds of millions in kina in annual revenue forgone.

 

A 2017 World Bank analysis found the project partners had negotiated favorable methods of calculating royalties to the government that allowed them to take various deductions.  Combined with tax concessions, the project created “a complex web of exemptions and allowances that effectively mean that little revenue is received by government and landowners,” the World Bank said.

 

A second LNG project, Papua LNG, led by France’s Total with Exxon and Oil Search as minority partners, is scheduled to finalize an agreement with the PNG government in early 2019. Papua LNG, a new gasfield using the same but expanded processing plant, could commence production as soon as 2024, according to Total. Analysts estimate it will cost around USD $13 billion.


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