Covid-19 further exacerbated problems in a market already suffering from a global glut and record low LNG spot prices. Papua New Guinea was set to increase its LNG nameplate production capacity by 117% in 2024 with two expansions at its only active LNG project, PNG LNG. The upcoming LNG projects already had a tumultuous start to the year after the planned simultaneous development of Elk-Antelope (Papua LNG) and P’nyang came under question when the P’nyang Gas Agreement talks collapsed in January 2020. Additional pressure has cast more uncertainty on the projects as Covid-19 has weakened demand from the world’s top LNG importing countries.

PNG LNG has performed consistently above nameplate capacity in the years following its start up in 2014, reaching a new record of 23% above capacity in 2019. The project has limited exposure to the spot market as over 95% of the assets nameplate production capacity is covered under long-term contracts; however, with record low oil-linked LNG prices reported in May 2020 revenue for both participants and the government is set to take a considerable hit. The fiscal take in 2020 is expected to drop 81% from the previous year. Due to the current fiscal regime, 2024 marks the end of the cost recovery for PNG LNG and therefore the project’s taxable income increases.

Japan imports the most LNG followed by China who have been increasing their yearly imports while Japan has consistently imported less since 2017. These two countries account for 79% of PNG LNG’s exported cargoes. The Covid-19 pandemic has destroyed demand globally and Japan’s winter months in 2019/20 have had the lowest LNG imports in the last five years. Even China, with its push for greener energy in the coal-to-gas transition, had the lowest percentage increase in LNG imports in Q1 2020 compared to the last four years. Both countries have suffered a drop in GDP and this will likely translate to lower energy imports throughout 2020.

Future LNG developments in the country include Pasca Phase 2, Elk-Antelope (Papua LNG), and P’nyang, aiming to target around 10 tcf of gas. The potential future development of Pasca will be the first offshore project in the country, with plans to utilise the platform as a catalyst for further offshore developments. Investors are likely to be cautious taking risks in the current climate with a new project from a relatively small company. Elk-Antelope (Papua LNG), after the signing of the Gas Agreement in April 2019, was set to come online in 2024 but due to a breakdown in talks regarding the P’nyang counterpart agreement and market conditions, 2027 is a more likely project start date. Alongside the midstream expansion also in 2027, PNG LNG will get an upstream expansion with the Associated Gas Expansion (AGX) the same year, followed by P’nynang’s tentative start date of 2030.

The future of Papua New Guinea’s LNG projects remains uncertain, the situation further intensified by the government’s announcements to change fiscal regime to that of a PSC in 2025 in an attempt to reap more benefits for the country. Total’s Elk-Antelope (Papua LNG) project looks the most likely to remain on schedule now, hoping to take FID in late 2021. P’nyang could still be further delayed if demand remains low and fiscal terms cannot be agreed. Twinza’s ambitious Pasca offshore FLNG development could benefit from its smaller scale and potential to promote future offshore projects.