Key Points
- Papua LNG has been delayed. FID pushed to 2025
- The impact of the delay on PNG’s economy is a mixed bag
- TotalEnergies remains committed to the project alongside its partners ExxonMobil, Santos, and JX Nippon
- Papua New Guinea government remains optimistic about securing financing
The Papua LNG project, a cornerstone of Papua New Guinea’s (PNG) economic development plans, has been delayed. A joint statement released on April 8th by the Independent State of Papua New Guinea and TotalEnergies, the project operator, announced the final investment decision (FID) has been pushed back from 2024 to 2025.
This delay stems from challenges in finalizing commercially viable engineering, procurement, and construction (EPC) contracts. As Patrick Pouyanné, chairman and CEO of TotalEnergies, stated, “the project will need to keep working with contractors” to secure these agreements. Consequently, the project will undergo a review of some contract structures and open competition to a wider pool of Asian contractors, extending the timeline for FID.
Adding another layer of complexity to the Papua LNG project’s delay, major French banks have reportedly pulled back from financing the project. According to Reclaim Finance, a French non-profit focused on environmentally responsible investments, Crédit Agricole, BNP Paribas, and Société Générale have all declined to participate.
These banks cite their internal policies that exclude financing for new oil and gas projects due to environmental concerns . The project is estimated to emit a significant amount of greenhouse gasses, with calculations suggesting 220 million tones of CO2 could be released.
This aligns with a growing trend amongst financial institutions, with a report by Bloomberg finding that global banks have withdrawn over $38 billion from financing fossil fuel projects since the Paris Agreement in 2015
The Papua New Guinea government, however, remains optimistic about securing financing. Prime Minister James Marape has publicly stated his confidence that alternative investors will be found. The project’s significant export capacity of 5.6 million mt/year and proximity to Asian markets are seen as attractive selling points . Whether the government can secure financing without compromising on commercially viable terms for PNG remains to be seen.
Despite the setback, TotalEnergies says it remains committed to the project alongside its partners ExxonMobil, Santos, and JX Nippon.
Early works planned for 2024, such as infrastructure development, will also proceed as scheduled. Additionally, TotalEnergies plans to drill the first deepwater exploration well on the PPL 576 license in 2025.
The impact of the delay on PNG’s economy is a mixed bag. In the short term, the postponement of significant foreign investment could hinder economic growth. Construction jobs associated with the project will also be delayed, affecting employment opportunities for Papua New Guineans.
However, there are potential long-term benefits. Renegotiating contracts and seeking new contractors could lead to more commercially viable terms for PNG, potentially increasing the project’s long-term value to the country. Additionally, the early works planned for 2024 can offer some economic stimulus.
The global energy market’s constant fluctuations pose a risk. The one-year delay exposes the project to potential future price changes for LNG, impacting potential returns. Delays can also dampen investor confidence in PNG’s resource development sector, potentially affecting future projects.
The coming months will be crucial for PNG’s government as it works with TotalEnergies to ensure the project delivers lasting benefits for the country.
