Overview

The successful start-up of the PNG LNG plant has transformed the country's oil and gas sector. The plant went online in May 2014 marking the first-time gas had been produced in the country. Gas production was non-existent because there is no domestic market for the fuel.

Oil is produced in modest volumes from a limited number of onshore fields. Oil Search, a PNG-based independent oil company, operates all of the country’s producing oil and gas fields. International companies InterOil and Horizon Oil have made gas discoveries and are exploring ways to monetise them, either through the expansion of facilities at the PNG plant or by building another facility.

The island of New Guinea is both mountainous and marshy, making it a challenging environment to operate in. The lack of infrastructure adds to the expense. The cost of the PNG plant expanded from $15.7 billion to $19 billion. It is the largest foreign investment ever made in Papua New Guinea.

The project has already made a big impact on PNG’s economy, bringing strong GDP growth and gave employment to around 8,000 locals during the construction phase. Port Moresby has set up a sovereign wealth fund, which will be fed from taxes on LNG exports. The fund will be used for long-term social programmes to train and educate the workforce.

The country’s reserves are not vast, but with no other way to monetise its discoveries, InterOil has plans to build a second LNG plant. The likelihood of a second plant depends on the success of the first. The plant has only just started operating and the fields it relies on are untested for continuous high-volume gas production. In the case of inadequate supply, agreements could be made with InterOil or Horizon Oil for supply.

Page updated: 02/09/2014