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Exxon Ships First LNG Cargo from Papua New Guinea -- Update

By Ross Kelly SYDNEY--Papua New Guinea became the world's newest energy exporter, after a facility operated by Exxon Mobil Corp. began shipping liquefied natural gas. The delivery from the US$19 billion PNG LNG project was the first from several new LNG terminals in the small southeast Asian island nation and Australia. The plants are expected to start up over the next three years and will mark a shift in the global LNG trade away from the Middle East. Work began on the PNG LNG project in 2010, when Asian gas users were looking to increase imports of fuels that burn more cleanly than coal, and international energy companies were struggling to gain access to resources not owned by foreign governments. The industry's landscape has changed dramatically since then; North American companies now are looking to export shale gas, and China in recent days signed a US$400 billion deal to buy gas from Russia. The changes threaten to make the market more competitive and drive prices down for producers. But for Papua New Guinea, the start of gas shipments around three months ahead of Exxon's schedule heralds a much-needed injection of cash into its economy. By some estimates, the PNG LNG project could more than double the country's gross domestic product. Exxon, based in Irving, Texas, said the PNG LNG project would produce more than 9 trillion cubic feet of gas over 30 years, starting with the maiden shipment to Japan's Tokyo Electric Power Co. Exxon is in talks with partners including Australia's Oil Search Ltd. about expanding the plant. "It's great for Papua New Guinea," said Jenny Haward-Jones, an expert on the country at the Lowy Institute, a Sydney-based think tank. "It sends an important signal to the international resources community that things can get done here." Still, it was unclear whether the country would be able to avoid the so-called resource curse of many developing nations that receive a sudden influx of cash. "The big problem is whether the country uses the revenue from PNG LNG to improve living standards here and equally distribute the benefits," Ms. Hayward-Jones said. "It seems to be going well, but you wouldn't want to predict everything will be completely rosy." Early completion of the project is a boon for Exxon, which is under pressure to find new sources of revenue to boost sagging earnings. Oil and gas production at the company has fallen every year since the 2010 acquisition of natural-gas producer XTO Energy Inc. "Our demonstrated expertise will enable us to progress other LNG opportunities in our portfolio, including expansion opportunities in Papua New Guinea, and to meet growing global demand," Neil W. Duffin, president of Exxon Mobil Development Co., said in a prepared statement on Monday. PNG LNG still faces risks, including potential disputes between landowners over the distribution of royalties and environmental damage and harsh operating conditions in a country that is prone to heavy rains and earthquakes. The project's gas is in remote parts of the country's mountainous highlands and has to be transported to the coast by a 190-mile, 32-inch pipeline that crosses rugged terrain up to 650 feet above sea level. From the shore, it is transported by a 250-mile subsea pipeline to a gas-processing terminal before being shipped to customers in Asia, including Taiwan's CPC Corp., Japan's Tepco and Osaka Gas Co. and China Petroleum and Chemical Corp. The project's infrastructure crosses land occupied by local tribes that speak dozens of different languages and often are at war. The Panguna copper mine on the Papua New Guinean island of Bougainville was shut down in 1989 after local residents attacked the mine and its staff amid claims of environmental pollution and unfair distribution of government proceeds. Papua New Guinea's prime minister, Peter O'Neill, said Monday that PNG LNG would benefit the country for generations. Exxon and Australian partner Oil Search are looking to expand its annual production capacity beyond 6.9 million metric tons of LNG. Among their options are a large gas resource at P'nyang, which also is located in the country's highlands, and exploration prospects near fields that already supply the PNG LNG plant. Oil Search also is involved in a joint venture that includes InterOil Corp. and Total SA that is planning to build the Papua New Guinea's second LNG plant by tapping two large gas discoveries in the country's south. Write to Ross Kelly at Corrections & Amplifications Exxon is based in Irving, Texas. An earlier version of this article incorrectly said it was based in Houston. Subscribe to WSJ:

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