The Papua New Guinea-to-Queensland natural gas pipeline project—now referred to as the Highlands Gas Project—has moved forward to its front-end engineering and design (FEED) phase following two conditional agreements signed recently for the sale of gas in Australia.
Total project cost of the 3,600-km (2,250 mile) pipeline would be about $3 billion. The FEED stage would cost about $100 million.
Project operator Melbourne-based Esso Highlands Ltd. has agreed with Queensland Alumina Ltd. (QAL) for the sale of 320-800 million cu m of gas/year for 20 years to QAL's alumina refinery in Gladstone on the central east coast of Queensland. It will also sell 265 million cu m/year of gas to Brisbane-based CS Energy Ltd. for a similar 20-year period for power generation in Brisbane.
Based on these agreements, the pipeline project will move into the FEED program that will take 12-18 months to complete. Activities will include design of the gas field developments in Papua New Guinea, along with gas processing, export compression facilities, and the section of the pipeline that lies within Papua New Guinea territory up to the offshore border with Australia.
The project owners have signed a separate letter of intent with APC (a consortium of Australian Gas Light Co. of Sydney and Petronas of Malaysia) for APC to run a FEED program for the Australian section of the pipeline including spurs to markets in Australia.
APC will be responsible for designing, owning, and operating the pipeline and confirming all project regulatory approvals within Australia.
A separate deal negotiated by Sydney-based Oil Search Ltd. (one of the project owners) involves an option to buy up to 10.5 billion cu m of gas and associated gas liquids from Esso to be supplied from the Hides gas field in Papua New Guinea. Oil Search intends to use this gas to supply its own gas business plans within Papua New Guinea, which include development of petrochemicals, compressed natural gas, and gas-to-liquids projects. All are currently in feasibility study stages.
Oil Search will pay $120 million once the total Highlands Gas Project has been sanctioned. The company has 3 years from first production to exercise its option to take the gas and nominate a delivery schedule. The final payment will depend on the volume of gas contracted to the overall Highlands Gas Project when it comes on stream.
The FEED program will enable the project owners to decide whether to proceed to the construction phase. Such a decision will depend on having sufficient firm sales contracts in place to satisfy the economics of production.
The project reportedly needs a minimum 4 billion cu m/year of firm sales agreements to proceed. Planners will still seek additional gas customers during the FEED process.
The Highlands Gas Project was first discussed in the mid-1990s when the Papua New Guinea gas and oil fields—centered on the Kutubu facilities in the country's highlands—were operated by Port Moresby-based Chevron Corp. subsidiary, Chevron Nuigini.
Oil has been flowing from Kutubu by pipeline to the offshore Kumul platform and loading facility in the Gulf of Papua since 1992. Gas associated with oil production has been reinjected into the field to maintain reservoir pressure. It was realized that continued reinjection of gas eventually would be detrimental to oil production and this brought about the gas production scheme. The plan to include supplies from the massive, dry-gas Hides field guaranteed sufficient volumes for a long-term supply.
Australia was the most likely market, and the AGL-Petronas consortium was selected as the preferred pipeline owner-operator following an international tender in 1997. A pipeline route across Torres Strait to Queensland and then to the Gladstone-Brisbane region was surveyed during the same period. Several routes, including offshoots to northwestern Queensland, have been looked at since.
The delays after the late 1990s have been caused by the consortium's inability to secure firm supply commitments from Australian customers. Competition has been particularly strong from coal bed methane production in the Bowen-wSurat basins in southeastern Queensland, which now supplies about 25% of the state's gas.
The Highland Gas Project owners believe that a market opportunity for a major new gas supplier still exists on Australia's east coast and they are now moving to secure it.
Participants in the project include ExxonMobil Corp., Oil Search, MRDC (a Papua New Guinea company representing landowner interests), and Nippon Oil Exploration of Japan.