May 24, 2013

Osaka Gas Buys PNG Gas Fields

Image credit: OilSearch

SYDNEY - Osaka Gas Co. Ltd. has agreed to pay up to US$204 million to acquire stakes in natural gas assets in Papua New Guinea owned by Horizon Oil Ltd., in the latest bet by an international energy company on the country's potential as a supplier of clean-burning fuels. 

Japan is the world's biggest importer of liquefied natural gas – a natural gas cooled to a liquid so it can be transported by ship – and its utilities have been seeking supplies as a cheaper alternative to oil in power generation. Japanese companies are also keen to lock in new sources of gas to replace some existing supply deals, which are coming to an end as fields become depleted, and as a possible substitute for nuclear power. 
Horizon Oil and partners including Japan's Mitsubishi Corp. and Canada's Talisman Energy Inc. are looking to combine natural gas from several fields in the flat forelands region of Papua New Guinea, and send the gas by pipeline to a proposed processing facility on the coast for export to Asia. 
Mitsubishi took a first foothold in Papua New Guinea early last year, spending US$280 million to buy stakes in several discoveries and exploration blocks from Talisman. 
Papua New Guinea – a Southeast Asian country best known for its jungles and tribal society – is set to become the world's newest significant energy exporter next year when the US$19 billion PNG LNG facility operated by ExxonMobil Corp. starts up. 
Much of Papua New Guinea is lightly explored for oil and natural gas, increasing its appeal to overseas investors. Unlike rival LNG suppliers in the Middle East, shipments to Asia from Papua New Guinea won't pass through the Malacca Strait choke point near Singapore and freight charges are lower. 
Wood Mackenzie, a U.K.-based consultancy, estimates Papua New Guinea has 26 trillion cubic feet of natural gas – roughly equivalent to the amount of the clean-burning fuel that the U.S. consumes in a year. 
Horizon Oil and its partners aren't alone in considering new export terminals. U.S.-based InterOil Corp. is promoting plans for a new gas-export plant further along the coast and is actively seeking an investor with experience in operating such a facility to share development costs. 
Brent Emmett, Horizon Oil's chief executive, said Osaka Gas's experience in the LNG industry and gas-distribution network made it a compelling partner in Papua New Guinea. 
The deal involves Osaka Gas buying 40% of Horizon's assets in the country. Sydney-based Horizon Oil will receive an upfront cash payment of US$74 million, and a further US$130 million if a decision is made to build the LNG export project. 
Horizon Oil and partners have already made three discoveries in Papua New Guinea totaling more than 1.2 trillion cubic feet of natural gas combined. Separately, Talisman and Mitsubishi have found around 1 trillion cubic feet of natural gas further to the south. 
Energy companies typically look for 1 trillion cubic feet of natural gas reserves for each million ton of annual LNG capacity they plan to build. 
"Together, we have enough reserves at the low end to underwrite the planned plant at Daru," a port that is the capital of Papua New Guinea's Western Province, Mr. Emmett said. 
However, the companies are continuing to drill in the region to find more gas to support plans for a facility with an annual production capacity of 3-4 million metric tons of liquefied natural gas, he said.