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Speeches, 17 May 2016

PNG LNG update

Australia Papua New Guinea Business Forum, Andrew Barry, Managing Director, ExxonMobil PNG Limited

Distinguished guests, ladies and gentlemen.

It is a pleasure to be part of this panel to provide an update on the PNG LNG Project. 

In my remarks today I would first like to touch on the outlook for LNG demand before speaking about PNG LNG operations currently and how we are looking to expand to deliver even more benefit to our stakeholders and the people of PNG. 

Clearly the industry is dealing with the challenge of low commodity prices.  However, this is not new to our industry -- oil, gas, and LNG trade has and will continue to evolve.  

So in thinking about – and planning for – the future, I’d like to touch on the near-term price environment as well as the longer-term expectation for demand.

Firstly the Near-Term Price Environment.

New technologies are transforming the global energy landscape and robust production of oil and natural gas in North America is reshaping global markets.  Today, the world has abundant natural gas – more than two century’s worth of current demand – this is thanks to advances in both unconventional and conventional production.   

To understand the 5-year LNG price environment, we need to consider the very real issues we face today:

The long-term outlook is for LNG demand to rise by about 5 or 6 percent per year on average through 2025.   This implies demand growth of around 170 MTA by 2025.  

However, according to Wood Mackenzie, the LNG projects currently under construction globally will have added three quarters of the supply needed to meet that demand by the 2020s.

Needless to say only the most economic projects will proceed in this tough environment.

Despite the current price environment, which may challenge some producers, we believe natural gas, including LNG, has a bright future.  

That’s because global energy demand will continue to grow and LNG will play a critical role in meeting the world’s need for energy to fuel development and opportunity. 

Natural gas offers both economic and environmental benefits.   It offers an abundant source of energy that is reliable and flexible.  And because it is a cleaner burning fuel than coal, natural gas can contribute to cleaner air and reduced greenhouse gas emissions.  As demand for natural gas grows, we expect it will replace coal as the No. 2 global source of energy.  

Within this picture, the long-term outlook for LNG remains strong.  Through 2025, global LNG demand is projected to rise at twice the rate of natural gas in general.

LNG will be essential to meeting the world’s growing need for natural gas – particularly in the fast-growing economies of the Asia-Pacific region, where LNG demand will grow by over 60 percent over the next decade, accounting for about two-thirds of global demand growth. 

Current market realities are not just a challenge for LNG producers.  They will likely also prove a test for LNG buyers.  

A key challenge for buyers is how to back the right project.  

LNG projects take significant time, technology, and commercial skill to complete.  A typical LNG project is under development many years before it begins to supply markets with natural gas.  And our industry faces challenges at every step of the process. 

Securing Final Investment Decisions for new projects won’t be easy given the price environment.  

And yet, without new investments, we risk setting the stage for a supply-constrained market in the future.

Over the next few years, buyers will need to look for projects advanced by companies that have the track record and the ability to manage the financial, technical, and operational risks to bring LNG projects to timely completion.

We know it can be done, because we have done it – safely, efficiently, and reliably.

And that brings me directly to the PNG LNG Project.

From the heady pace of construction, to starting up production ahead of schedule in 2014, our business has continued to grow from strength to strength.  It was only 2 years ago that we were celebrating the loading of the first cargo. Now we have safely shipped more than 14 million tonnes of LNG in 194 cargos to customers.  

In those two years our operations have grown into one of the most efficient and reliable LNG production operations in the world – well and truly laying to rest any doubt that PNG could deliver on its promise to become a significant producer of LNG to the Asia Pacific region.  

If this is not remarkable enough, in the first quarter of this year the PNG LNG project facilities produced an equivalent of 8 million tonnes per annum, an increase of almost 14 percent from the design specification of 6.9 MTA.

We did this by focusing on safely increasing the efficiency of our operations and enhancing production rates at the Hides Gas Conditioning Plant and the LNG plant.  This has resulted in our facilities operating at high levels of efficiency and reliability, with our team of Papua New Guinean operators and maintenance crew leading the way.  

The benefits of this increased production are wide ranging and include additional revenues for the Government of Papua New Guinea, landowners and provincial governments.  

The achievement that eclipses all of that, in my view, is our safety performance. Since July 2013 we have worked almost 59 million hours without a lost time incident – incredibly that’s almost 30,000 years for a single person not needing to take time off work as a result of an injury. This is an outstanding achievement for the team. 

A few weeks ago, in early April the second of two LNG carriers built specifically to transport PNG LNG gas to our customers in Asia was named KUMUL, in a ceremony in China. This milestone brings to four the number of dedicated tankers delivering LNG to our long-term customers in China, Japan and Taiwan. 

We are looking forward to welcoming the KUMUL to Caution Bay to load its first cargo at the end of this month.

Also last month in April our workforce completed a partial shutdown of the LNG Plant for routine inspection and scheduled maintenance.  This period of high activity was completed on time and without a single injury.  The quick ramp-up of production after the maintenance period further cemented our workforce’s reputation for excellence and efficiency.  

2015 was a remarkable year for another reason.  

In addition to optimising our production processes, we made a commitment with the Government to work together on innovative solutions for the supply of domestic gas to improve the capacity and reliability of Papua New Guinea’s power network.   We fundamentally believe that one of the greatest multiplier effects for facilitating the growth of business and improving the living standards of the country lies in power generation. 

The first phase of our commitment was to supply 25 megawatts of electricity from gas-fired generators inside the LNG Plant to the grid in Port Moresby. 

It was delivered in July, in five short months from project start to finish.  Collectively we needed to build transformers, lay above ground and below ground power lines, and integrate them in time for the Pacific Games. And while it demonstrated our capabilities, credit is also due to PNG Power, whose tremendous efforts contributed to the overall success of the project.  Once again we demonstrated what can be achieved when industry, government and community work collectively together.  

Together, we’re helping to power Papua New Guinea. We’re proud of our contribution to this project which has resulted in the supply of more reliable and efficient power while also reducing emissions. 

Discussion is continuing with the government in relation to the development of an additional 50 megawatt gas fired power station on a site near the LNG plant. This is in addition to the supply of natural gas for the purpose of power generation at Hides and Western Province. 

We are very supportive of the government’s plans to improve the power generation capacity in the country which will serve as a catalyst for more business and economic growth.  

In order to support the supply of gas for domestic power generation -  and maintain capacity of our existing trains -  additional field reserves are required.  

The planned P’nyang Project is similar to the Upstream PNG LNG Project facilities at Hides, with a proposed Gas Conditioning Plant in Western Province and pipelines connecting with the existing PNG LNG Project facilities at Kutubu. 

The scope includes drilling 11 wells at 4 well pads, a 500 million cubic feet per day Gas Conditioning Plant, with gas and condensate pipelines running 250-kilometres before connecting into the facilities at Kutubu Central Processing Facility. 

The project scope also includes construction of access roads and potential for the supply of gas for power generation in Western Province.  

There is still a lot of work ahead of us.  We are working closely with the Government on the Petroleum Development and associated pipeline licenses for the P’nyang field.  The licenses are required prior to our investment in the 50 megawatt power project and future drilling, to certify larger volumes of gas.

P’nyang represents a further multi-billion-dollar investment, creating jobs and additional revenue for the nation.

Since 2010, ExxonMobil’s exploration team and licence co-ventures have invested more than 2 billion kina in exploration alone.  

We have future plans with Oil Search for exploration drilling on the Muruk well north of Juha and as just mentioned drilling on the P’nyang field in Western Province. 

Last year we completed a seismic data acquisition program covering more than 100 kilometers around the Juha and Hides fields in the Southern Highlands, which once analyzed, we hope will lead to future drilling programs.  And last month we were part of a 72-kilometre 2D seismic survey in the greater P’nyang area, completed by Oil Search.

Rarely do you get the honor to work on a project where you can so visibly see the benefits of your operations extending beyond the fence line or the revenues that flow to the State.  

We’re humbled to see the legacy that the PNG LNG Project continues to create for Papua New Guinea.  The Project has and is continuing to build the intellectual and skills capacity of Papua New Guineans.  

We have around 2400 people working on the Project, nearly 80 percent are Papua New Guinean and it is through their efforts that PNG LNG has created an enviable reputation as being a dependable supplier of LNG to the world.

We know that the investment we make in our workforce today is what will sustain and grow our business in the future.  

In 2015 alone, more than 43,000 hours of training through more than 2,300 courses were delivered to our workforce.  

Also in 2015 we welcomed on board our third intake of Operations and Maintenance trainees, which together with previous intakes, makes a total of almost 200 young Papua New Guinean trainees - 25 percent of whom are women.  These are the people who will play a key role in running and managing our facilities into the future. 

While still early in our operations, we are starting to see the benefits of our commitment to training both during construction and since production began, with increasing numbers of Papua New Guineans taking the place of expatriates in leadership positions in our workforce.

The enthusiasm, dedication and professionalism of our workforce is one of the most satisfying aspects of leading the team in Papua New Guinea.  They are truly the backbone of our business and the future of ExxonMobil in PNG.  

In addition to developing our workforce, a key component of our National Content strategy involves creating opportunities for local businesses to grow and prosper, from small micro-SMEs all the way through to large landowner companies.  

Since 2010 the PNG LNG project has spent over 12 billion kina on services provided by Papua New Guinean companies. Of this, more than 3 billion kina has been spent with landowner companies.

Our partnership with the PNG Institute of Banking and Business Management Enterprise Centre has also continued to develop.  Since 2010 our partnership has assisted over 17,500 local businesses with more than 20,000 days of training, mentoring and business assessment services, through the Enterprise Centre’s supplier development program. 

One of the early actions of the Enterprise Centre was to establish a supplier database to facilitate communication between local businesses and PNG LNG project contractors.  The supplier database now has more than 1,500 registered businesses.  

In our local communities we are continuing to build key programs focusing on education, health and environmental management, where we are helping thousands of PNG citizens lead better and healthier lives.  

We are seeing the benefit of our long-term approach to capacity building within key community groups, as they become more self-sustaining and pass their success onto others.

A highlight for me in 2015 was the delivery of 700 medical supply items to Tari Hospital, the culmination of a year’s work in a joint initiative between ExxonMobil PNG, the Tribal Foundation and Project C.U.R.E. We are looking forward to helping deliver three more containers of medial suppliers across the country in 2016.

In recent weeks we have launched the PNG LNG scholarships program with the Australian Government. The Australia Awards PNG LNG Scholarships will help eligible students in Project areas to complete tertiary studies in the fields of health and education.

Our livelihoods program continues to help farmers across our project areas, providing them with technical advice and materials - including planting drought resistant crops - and monitoring activities in an effort to promote agricultural sustainability.  

Yesterday we welcomed home nine outstanding Papua New Guinean women who participated in the month-long ExxonMobil-funded Global Women in Management program in Indonesia. 

This is the 10th year of our involvement with 62 women having now benefited from this training.  

In closing ExxonMobil is committed to PNG for the long term.  We are working hard to ensure that production operations maintain the highest level of performance and we continue to take full advantage of opportunities to grow our business in PNG.  

Those of you who have heard me speak before know I often speak of the many people who have contributed to our success –as it truly takes a team effort and commitment to deal with the challenges that arise.  

I would like to acknowledge the hard work and cooperation of the PNG Government, our co-venture partners, suppliers and contractors, landowners and communities in and around the areas we work, without whom none of this would be possible.  

Before I finish I would like to make a special acknowledgment for the support and leadership given to the PNG LNG project by the Late Governor of Hela Province, Anderson Agiru.  Governor Agiru was a formidable leader of his people and one of the strongest champions for the PNG LNG project.  Our whole organization is mourning.  We lost a colleague, partner and friend.  To his family and the people of Hela and Southern Highlands provinces I extend the deepest condolences from the PNG LNG family.  He will be truly missed.  

Thank you.