PNG LNG chief explains blowout

PETER Graham, managing director of ExxonMobil’s Papua New Guinea subsidiary Esso Highlands, has responded to recent criticism by saying that PNG LNG-scale projects are all experiencing cost increases. PNG’s shadow public enterprises minister Tobias Kulang recently implied to the local Post-Courier newspaper that Exxon deliberately timed its recent cost blowout announcement ahead of the national budget next week “to force” the government to reduce its 19.6% stake in the project. “This is a scam, concocted by ExxonMobil, knowing absolutely well the vulnerable position PNG is in,” he reportedly said. In a letter to the editor of this newspaper, Graham placed the $US3.3 billion cost blowout in a different light. “Projects of this size elsewhere in the world are experiencing cost increases, and such increases should be considered in context,” he said. “In PNG LNG’s case, the rising value of, in particular, the Kina and Australian dollar in relation to the US dollar is the single biggest contributing factor for the anticipated cost increase for the project. “Other projects in Australia are facing similar foreign exchange or ‘forex’ issues.” Graham also chimed in on the uniquely Papua New Guinean difficulties, which were worse than previously expected. “Forex impacts have been compounded by delays from work stoppages due to community disruptions and land access issues as well as challenges due to much higher than normal rainfall which increased construction and associated logistics costs.” The PNG LNG chief further discussed return on investment factors. “The economic impacts of the PNG LNG Project will reach well beyond the direct investment in PNG and the tax and equity returns to the state. Job creation and the impact on infrastructure are significant, while building the skills of Papua New Guinean workers through training will leave a lasting, positive legacy,” Graham said. “The PNG LNG Project is proud to be part of national efforts to build a strong economic foundation for growth.” The new $US19 billion price tag is up 21% from the last blowout and 27% up from the original $15 billion capital expenditure estimate of several years ago. The PNG LNG project is targeting two trains for a combined 6.9 million tonnes per annum of capacity, although there are investigations underway for a third train expansion.