Earthquake halts PNG LNG output, threatens market disruption

07 March 2018, Week 09, Issue 615

A 7.5 magnitude earthquake in the highlands of Papua New Guinea (PNG) on February 26 brought severe damage and numerous deaths to the Southeast Asian island and has forced the closure of the ExxonMobil-operated PNG LNG plant at Port Moresby.

A statement issued by PNG LNG on March 5 said repairs to the damaged facility could take as long as eight weeks. The facility withstood the earthquake extremely well because of its world-class design, construction of the facilities and the quick response of its staff, the statement said.

The halt in supply from PNG LNG is already reported to be creating a disruption in the spot and tanker markets.

Supply disruption

Tankers destined for the facility are reported to be changing course and announcing their availability for cargos, and LNG spot prices in the Asian market are reported to have increased.

One tanker was reported by Reuters on March 5 as still being anchored at the Kumul Marine Terminal after having arrived on February 24. A second bound for PNG from Taiwan has been diverted to Singapore and another that left Japan in February for Port Moresby is looking for a cargo.

ExxonMobil operates the US$19 billion PNG LNG project with a 33.2% share, while Oil Search owns 29%, PNG’s Kumul Petroleum holds 16.8%, Santos owns 13.5%, JX Nippon Oil & Gas Exploration has 4.7% and Mineral Resources Development Co. (MRDC) holds 2.8%.

The project began operations in mid-2014 and, while its nameplate capacity is 6.9 million tpy, the facility was producing around 8.5 million tpy prior to the earthquake.

PNG LNG’s main customers are JERA – a 50:50 joint venture between Tokyo Electric Power Co. (TEPCO) and Chubu Electric Power, Osaka Gas, China’s Sinopec and Taiwan’s CPC.

Recovery mode

Since the earthquake a week ago, there have been numerous aftershocks, with at least three of them registering at greater than 6 in magnitude on the Richter scale. The PNG government has declared a state of emergency and warned that national export revenue would be greatly affected. Prime Minister Peter O’Neill has described the situation as a “sad day for PNG”.

All the companies in the PNG LNG joint venture have made donations to humanitarian relief efforts amounting to several million dollars. Company helicopters and personnel are assisting relief organisations in their efforts to address the disaster.

“The initial rapid response by our well-trained workforce, coupled with controlled emergency shut-down systems, safely shut in our facilities, minimising damage to equipment and ensuring there was no release of hydrocarbons,” ExxonMobil PNG managing director Andrew Barry said on March 5. “Most importantly, we were able to quickly account for all of our employees and contractors at our facilities and confirm that everyone was safe.”

Damage assessment

ExxonMobil said work at the Hides Gas Conditioning Plant in Hela Province had turned to restoring camp and associated facilities.

The plant processes up to 1 bcf (28.32 mcm) per day collected from eight wells that are now shut in and undergoing inspection. The plant also produces 30,000 bpd of condensate. It has also been shut in but damage has been limited to pieces of equipment and foundation supports that will need to be inspected and repaired, although initial visual inspections indicated there had been no significant damage.

Most of the damage is reported to have taken place at the Agogo production facility and the Moran field, where major repairs may be necessary.

“We have assembled a team of technical experts from ExxonMobil’s global workforce to help the local team complete damage evaluations and restore production,” Barry said.

There have been no reports of damage to the 700-km pipeline that transports gas from the Hides facility to the LNG plant at Port Moresby or to offshore infrastructure. But the Komo airfield near Hides will remain closed, with options being considered to reopen the airfield as soon as possible.

Oil Search said its oil output would likely resume before the gas and LNG production, according to an Australian Financial Review report. It said the impact of the earthquake had been minimal and that production at its Gobe field would likely resume within two weeks and at the Kutubu field in about a month.

Edited by

Andrew Kemp


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