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Speeches, 09 February 2015

PNG LNG and the PNG economy

Leadership Summit, Andrew Barry, Managing Director, ExxonMobil PNG Limited

Honourable Prime Minister, Ministers, Members of Parliament, Governors, Secretaries, Heads of Departments and distinguished guests, it is a great privilege to be here with you today.  As some of you know, I recently replaced Peter Graham as the Managing Director for ExxonMobil PNG, and could not be more excited to be living and working right here in Port Moresby.

At the same time, Peter’s departure has left me with big shoes to fill. I hope I can live up to his legacy and continue the contribution he made to the economy and the many communities with whom he engaged. Peter was passionate about the potential of PNG – I share that passion and believe the future for this country is a bright one.

Before moving to PNG I was the President of ExxonMobil Canada. When offered this opportunity, what struck me most was the reputation that the PNG LNG project has created in the industry. For someone with over 20 years of experience working primarily in international roles related to LNG production and sales, PNG is an exciting place to be!

PNG LNG’s reputation is one of safety, sound environmental management, continuous and consistent community engagement, and on time performance – a true reputation for ethics and excellence. This reputation was built through the hard work not only of ExxonMobil, but that of you, the PNG government, our co-venture partners and the landowners and communities in and around the areas in which we work. Many, if not all of you in this room, contributed directly to the Project’s success.  We should be fiercely proud of our reputation and work hard to protect and strengthen it. 

As we look towards the future, I would like to first look at the global context relative to the LNG market, then reflect upon what has made PNG LNG the success that it is and how we can build upon this success to create a future that every Papua New Guinean so richly deserves.

Let me start with a macro view.

Each year ExxonMobil conducts a global assessment of energy fundamentals, called the Energy Outlook. I would like to share with you a few highlights specific to the Asia-Pacific region from our 2015 Outlook, entitled A View to 2040. 

As you can see by the chart, ExxonMobil sees ongoing growth in demand for energy being driven by growth in population and living standards.

Over the next three decades the Asia-Pacific region’s gas demand is expected increase by almost three fold, with power generation and industrial requirements being the primary drivers of this demand growth.

Critical for PNG is that a good proportion of that demand growth will be satisfied by LNG. In other words, the long term opportunity for PNG to earn value through LNG is strong.

ExxonMobil has been in Papua New Guinea since the 1920s.  As the new Managing Director, I know that this truly a special place – not just because of its growing role as a source of energy for Asia, but also for its history, its diverse and rich biodiversity, and the determination of the Papua New Guinean people to progress national development.

As you are all aware, 2014 was an incredible year for Papua New Guinea as the PNG LNG Project moved from construction to production, with over 60 cargoes now safely produced.

Our delivery of the Project months ahead of schedule demonstrated what can be achieved in Papua New Guinea, and has set the stage for future investments. Industry, government and community came together on the Project in a truly remarkable way. The importance of this Project for the economic future of the nation is clear.

Yet, the PNG LNG Project is more than just the physical assets that were built, or the revenues that flow. The Project has and will continue to build intellectual and skill capacity within the country.

During construction we employed more than 9,000 Papua New Guineans and delivered more than two million hours of training through some 13,000 training courses.

We have worked with local suppliers, which has resulted in an in-country spend of almost 11 billion Kina.  We have also invested more than 650 million Kina in community programs and infrastructure, with a particular focus on education and community health.

As we reflect today, there is no doubt that the current low commodity prices will strain resource sector dependent economies such as ours.

What is important to reflect on is the long term nature of investments such as the PNG LNG Project. Commodity prices are cyclical and as long as the fundamentals are strong, like they are for this Project, the benefits will remain.

The PNG LNG Project is just at the beginning of its multi-decade production life, and already you can see the impact, from successful construction and early startup, on the economy.

Many market analysts may suggest that the oil and gas prices present at startup were above historical averages. As such this higher set of prices multiplied the benefit of early production and exports.  Going forward monthly and annual revenues will continue to fluctuate, thus the key to success is having a long term view, while taking the necessary actions to ensure that Project fundamentals remain strong and that LNG production continues uninterrupted.

So, what is important to encouraging further investment in PNG? It comes back to all the factors that made PNG LNG successful. It is the cooperation with government, with landowners and communities, and ensuring a sound oil and gas regulatory regime that supports private investment.

The PNG LNG Project has created a reputation that is not only enjoyed by Project participants but also by the wider industry in PNG. The investment community, the buyers and governments have all stood up and taken notice of the achievements made by this Project.

But a word of caution is needed. When things go as well as they have for the Project some may take the view that it was easy – it was not. Project success took a massive effort in terms of human resource, financial capital, project management, and technical know-how to achieve. I am sure many of you in the room that were involved during construction would agree.

ExxonMobil’s reputation is all about taking on the “World’s Toughest Energy Challenges” and this project has been a great example of that. 

Having financially and technically strong partners with the global experience in the industry such as ExxonMobil along with the capabilities of our co-venture partners will continue to be the key to success.

The PNG government deserves much praise for its efforts to encourage new investment.  In addition to your work to increase revenue transparency and accountability as well as putting in place mechanisms that support the country’s development aims, your continued efforts in the following areas will, from our perspective, further build PNG’s reputation as an attractive country for investment.

1. The first is to continue efforts that support political, fiscal and legislative stability. As noted earlier industry investments require a long term view, something that such stability is critical to achieving.

2. In parallel, the Department of Petroleum and Energy’s moves to increase the transparency and enforcement around exploration acreage licenses, and provide regular and predictable release timetables will assist companies in planning their participation in such licenses.

3. And finally, I wanted to thank the Government for its efforts to continue to protect the nation’s critical economic infrastructure while supporting and serving the communities within which we operate.

PNG is blessed with abundant resources, but challenged by physical conditions that add cost and complexity. An example of this is seen in our drilling campaign. The wells we are drilling today in the Highlands are some of the most complex our company is undertaking globally, a complexity that is magnified by difficult topography and geographical remoteness. Ensuring that new PNG projects are globally competitive, given such challenges, is important for all of us to recognize.

As we and others have stated there is significant potential for the expansion of PNG’s LNG sector. However, it is important to note that the starting point for any new development will be the need to accumulate proven reserves, and it’s a challenge for everyone, not just us.

We are on our way, though.

We are currently drilling the Hides Deep well, will drill an appraisal well at P’nyang next year and have other exploration activities planned in the Fold Belt trend.

And, as you are also aware, we have worked closely with the government, under the guidance of the Prime Minister, to sign a memorandum of understanding (MoU) that outlines a path to increased power generation for Port Moresby as well as potential Project expansion that would create more revenue for the State and Landowners.

The MoU includes the provision for up to 20 million cubic feet a day of natural gas over 20 years to support plans to improve the capacity and reliability of Port Moresby’s power supply. Some 25MW of capacity is targeted to be available ahead of the Pacific Games with an additional 50MW available by the middle of next year. This will provide much welcomed support to power generation in the capital, and we are working closely with PNG Power to assist their efforts to fully realize the benefits.

We’ve also have a longstanding commitment to supply four million cubic feet a day of gas in the Highlands for power generation, and are looking forward to implementing that in the near future.

The success of the PNG LNG Project has provided an excellent platform for future growth. The reputation of the Project and the country is riding high and we all should be fiercely proud and protective of this. We should not underestimate the confidence that PNG LNG’s reputation will give others as they consider investing in this great country.

We at ExxonMobil will be working hard to ensure that production operations maintain the highest level of performance, but we need the support of everyone to ensure actions outside our control do not impact our reputation or reliability.

The future of PNG is bright and we continue to be encouraged by the leadership and vision of the Government. We are partners in the project, in the economy, in the community and in a shared future.

Again, I could not be more excited about my new role, and the opportunity to live and work here in PNG.

It has truly been an honor to speak to you today.  You have my deepest respect, and my commitment to work as hard as I can to support your efforts to build the prosperity and quality of life that each Papua New Guinean deserves.

Thank you.