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PORT MORESBY, Papua New Guinea (The National, December 6) – Front-end engineering and design on the proposed natural gas pipeline from Papua New Guinea to Australia has been placed on hold after two years of work because of uncertainty over market prospects.

This was disclosed on Monday at the 9th PNG mining & petroleum conference by Peter Graham, project executive for ExxonMobil Development, the operator for the PNG Gas Project.

Mr Graham’s presentation represented the most pessimistic note at the generally upbeat PNG resources conference where there was much discussion on two major gas discoveries and strongly rising exploration activity.

He said Oil Search and the Sydney headquartered AGL were jointly studying alternate pipeline development options following the withdrawal of the AGL-Petronas joint venture from planned construction of the Australian leg of the pipeline.

Mr Graham disclosed that AGL and Petronas had signalled problems with pipeline costs last March, several months before this information became public.

A four-month review had been unable to cut anticipated project costs or reduce transport tariffs for the gas.

It is understood the search for alternatives by Oil Search and AGL, which will include the possibility of using third party gas pipelines in Queensland, is likely to be finished within a couple of months.

At that stage a decision would be taken whether or not to proceed with the gas project, the sources said.

Mr Graham said ExxonMobil was simultaneously looking at the prospect of building an onshore liquefied natural gas (LNG) facility, although it was clear such a project would face similar challenges.

In answer to a question whether InterOil and ExxonMobil could consider combining their separate LNG projects, InterOil’s Dr Jack Hamilton noted that InterOil had "a higher degree of freedom to act and move", a reference to the complex ownership structure of the project.

Mr Graham also said it was not possible to consider both the PNG Gas Project as well as LNG at the same time because there were inadequate reserves at this stage for both ventures.

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