SYDNEY May 21 ExxonMobil's $19 billion
liquefied natural gas (LNG) project in Papua New Guinea, which
is shipping its first cargo, is set to dramatically transform
one of Asia-Pacific's most unstable countries, for better or for
The LNG venture, which is expected to produce more than 9
trillion cubic feet of gas over 30 years, is the largest private
investment in the South Pacific nation's history.
ExxonMobil is relying on projects like this one for
much-needed production growth, while the Papua New Guinea
government hopes it might double its $15 billion dollar economy,
now slightly larger than Botswana's.
But sharing the spoils of resource projects has previously
torn apart a country that is seen as one of the most corrupt in
the world, and with a political system that produced two rival
governments claiming to be in charge for much of 2012.
And as the first cargo of clean-burning LNG is shipped to
Japan, the government has yet to fully identify which landowners
will receive royalties, a critical holdup that has raised the
spectre of unrest in the impoverished highlands where locals are
anxiously awaiting a historic windfall.
The big question now is whether the project will prove to be
a blessing or a curse, said Bryant Allen, an expert on Papua New
Guinea at the Australian National University, who helped Exxon
in identifying and compensating affected landowners there.
"If the Papua New Guinea government could find a way to get
those funds to flow back into the education system and back into
the health system and fix up all those schools, this could be
fantastic for PNG," he said.
"But I just don't see it happening at the moment."
Other resource projects in Papua New Guinea have previously
stirred violence or even civil conflict, and even when up and
running there is a risk of money being squandered or pocketed by
A copper mine once operated by Rio Tinto became a
central issue in a bloody secessionist conflict in the
semi-autonomous Bougainville region, while other projects have
been blamed for environmental damage and human rights abuses.
DESPITE ALL THE POLITICAL NOISE
ExxonMobil's agreement with the government sets aside a 2
percent royalty for landowners, to be held in trust by the
government until they have vetted the clans that claim to own
Petroleum and Energy Minister Nixon Duban could not be
reached for comment by phone or email, but he told the
Australian Broadcasting Corporation earlier this month that he
hoped most of the clan-vetting would be completed by Christmas.
The project contains unprecedented potential upside for
Papua New Guinea. Its economy is forecast to hit a record 21
percent growth rate in 2015 on the back of the project, with the
government expecting to bank 1.7 billion to 2.2 billion kina
($621 million to $803 million) per year until early next decade.
That figure will soar to 4.5 billion kina, boosting total
revenue by 40 percent from 2014 before construction of a second
$12 billion LNG project, expected to boost the economy further
when work begins around 2017 or 2018.
ExxonMobil and its partners - Oil Search Ltd,
Santos Ltd, Japan's Nippon Oil Corp and the PNG
government - are looking to expand the plant, but have yet to
decide where to source the additional gas.
ExxonMobil PNG Ltd Managing Director Peter Graham said that
he has faith that the government would seize on the project's
potential to radically transform Papua New Guinea.
"I am really proud of what we've contributed throughout four
years of construction. We're ahead of schedule - and there
aren't many resource projects in the region that can say that."
He said he was confident of the government's ability to
distribute funds, adding that a transparent benefit sharing and
distribution process was critical for long-term security.
RISK OF TROUBLE
Not everyone, however, is so sanguine about its prospects.
The highland valleys where the project is located are among
the most isolated locales on Earth and deciding who is entitled
to compensation is a hugely complicated task made more so by
competing land claims and complex local concepts of ownership.
On top of this Papua New Guinea is ranked 144th out of 177
nations on Transparency International's 2013 Global Corruption
Index, putting it just ahead of Zimbabwe.
"Right now there's an expectation that wealth will come. My
point of view is that if people don't see something within 12
months of the startup, there will be big trouble," said Grant
Worner, a former CEO of New Guinea Energy, an energy explorer.
The use of violence to settle disputes is also woven into
the tribal fabric and assault weapons are ubiquitous.
The 700 km PNG LNG pipeline is mostly buried underground,
though some experts warn of its vulnerability to sabotage.
In 2010 villagers attacked the plant site, burning heavy
machinery and using high-powered weapons to damage construction
equipment over a land dispute, according to a media report, and
in March this year at least four people died in inter-tribal
fighting in the highlands surrounding the gas fields.
"I've seen these guys in the bush and they can move through
the bush at an amazing speed, so if they decided to take on
their government because they were so cranky about it, it could
be quite a nasty little war up there at some stage," Allen of
the Australian National University said.
(Additional reporting by Sonali Paul in MELBOURNE and Aaron
Sheldrick in TOYKO; Editing by Ed Davies)