RIFT OIL PLC (RIFT): CHART AND DISCUSSION THREAD

Exxon Studies Building LNG Plant in Papua New Guinea (Update2)

By Angela Macdonald-Smith

Dec. 4 (Bloomberg) -- Exxon Mobil Corp., the biggest U.S. oil company, said it's studying building a liquefied natural gas plant in Papua New Guinea as an alternative to piping the fuel to eastern Australia.

Exxon will examine the viability of an LNG plant at the same time as Exxon's partners in Papua New Guinea gas fields, AGL Energy Ltd. and Oil Search Ltd., study a revised plan to build a pipeline to Australia, Peter Graham, project executive at Exxon Mobil Development, said today in Sydney. Both assessments will be completed ``in the near term,'' he said.

The Irving, Texas-based company's original plan to pipe gas from Papua New Guinea to Australia stalled after AGL Energy, the operator of a venture to build the Australia part of the pipeline, said in August it won't proceed with engineering work because the project isn't economic. The partners have since been examining alternative plans to develop their gas reserves.

``World energy demand, the global LNG market and LNG technology have changed significantly and it is appropriate to assess whether LNG might create superior value for PNG gas'' than piping it to Australia, Graham said in a conference address. The initial plant would comprise a single production unit, he said.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline. On arrival it is turned back into gas for distribution by pipeline to users such as power stations, factories and households.

Rival Ventures

Exxon isn't in talks with a rival LNG venture in the Pacific nation led by PNG LNG Inc., a venture including InterOil Corp. and Merrill Lynch & Co.'s commodities unit, Graham said. PNG LNG's project involves a project to produce as much as 9 million metric tons a year of LNG, at a total cost including the gas field developments and shipping, of as much as $11 billion, Jack Hamilton, chief executive-elect of the company, said today.

Oil Search, based in Port Moresby, is separately studying a potential LNG project in Papua New Guinea with BG Group Plc, the U.K.'s third-biggest oil and gas company. That work is ``progressing,'' said Bob Marcellus, gas commercialization manager at Oil Search.

China National Petroleum Corp., parent of Hong Kong-listed PetroChina Co., signed an agreement in January to develop gas supplies in Papua New Guinea and study an LNG project. China National Offshore Oil Corp. is also considering a potential LNG project in Papua New Guinea, the government of the Pacific nation said in December.

Papua New Guinea has proven, probable and possible reserves of about 25 trillion cubic feet of gas, plus another 25 trillion that are estimated yet to be found, Marcellus said.

`Hungry' For Energy

``Several companies from the very large to the very small are considering how best to tap this market,'' Marcellus said in an address to the conference. ``World markets are increasingly hungry for the energy of PNG.''

The Papua New Guinea government still regards a proposed pipeline to Australia as a ``catalyst'' to enable the development of a gas processing industry, said William Duma, acting petroleum and energy minister.

``The gas project is very, very important to enable us to leverage the opportunities that we have there,'' Duma said. Exxon and its partners need ``to resolve the commercial issues and bring the project to reality,'' he said at the conference.

Invited Bids

AGL Energy and Oil Search have invited expressions of interest from companies to build the Australian part of the proposed pipeline, replacing the venture between AGL Energy and Malaysia's Petroliam Nasional Bhd. which decided not to proceed with the project, Peter Botten, Oil Search Managing Director, said in an interview during the conference.

``The interest from a number of parties is being fully tested now,'' Botten said. ``Expressions of interest are sought on being involved in the pipeline and over the next month or so we'll have those expressions back and understand it a lot better.

The invitation was sent to about six companies, Botten said. One companies almost certain to be involved is Australian Pipeline Trust, which has openly stated its interest and owns pipelines in Australia that may be used as part of the project, he said.

Sydney-based Australian Pipeline's biggest shareholders are Alinta Ltd. and Petronas.

The total cost of developing gas fields in Papua New Guinea and building the pipeline to Australia was put at $3.5 billion in 2002. The estimated cost since rose to $5.5 billion, including $2.5 billion for the Papua New Guinea part of the project and A$4 billion ($3.1 billion) for the pipeline from the Papua New Guinea border to customers in Australia.

The revised plan involves the staged construction of the line, a shorter route and the use of existing pipelines owned by third parties.