Oil Search sees Total's Papua LNG advancing ahead of Exxon's P'nyang

MELBOURNE/BENGALURU (Reuters) - Oil Search Ltd OSH.AX said on Thursday its stalled plan to expand gas output in Papua New Guinea would now focus on the Papua LNG project, led by Total SA TOTF.PA, in a change of tack following political ructions in Papua New Guinea.

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France’s Total had previously pushed to work with Exxon to double liquefied natural gas (LNG) exports from the country through a twinned $13 billion expansion of Exxon’s PNG LNG plant and development of Total’s Papua LNG project.

Oil Search is a partner in both projects, which had insisted they would only go ahead together by adding three new processing units, or trains, at the PNG LNG site.

Progress has been stalled by PNG Prime Minister James Marape’s push for a bigger take for the country from Exxon’s side of the project, development of the P’nyang gas field.

Oil Search said it now sees Total’s Papua LNG progressing on its own, with two trains initially.

“There is significant interest from all parties to simplify LNG expansion in PNG and focus on Papua LNG 2 trains,” Oil Search CEO Keiran Wulff told investors.

His comments come as Marape faces a threat to his leadership, with several members of his government switching to the opposition last Friday.

“Whilst PNG is certainly the land of the unexpected, recent events in PNG are worth following closely,” Wulff said. “Comments by Total, the PNG government and the PNG opposition are increasingly supportive of advancing the Papua LNG project.”

Papua LNG needs to test market demand before going ahead.

“We think there’s a strong increase in demand opening up in 2027” as big coal users such as Japan and South Korea seek to lower emissions, Wulff told Reuters.

To meet that window, Papua LNG’s owners would have to reach a final investment decision in 2023, he said.

Exxon said talks with the government on its P’nyang gas project, which was to feed a third new train at PNG LNG, are ongoing. It declined to comment on Oil Search’s remarks.

“We are hopeful that we can work towards an outcome that benefits all stakeholders,” an Exxon spokesman said in emailed comments.

Exxon’s PNG LNG plant has been producing at 26% above its nameplate capacity and as a result will soon need new sources of gas. As a result, P’nyang might be tapped to supply the existing PNG LNG trains instead of a third unit, Wulff said.

Reporting by Sonali Paul in Melbourne and Shruti Sonal in Bengaluru; Editing by Shailesh Kuber and Lincoln Feast