New prime minister could pose threat to PNG natural gas projects

Stephen Stapczynski May 30, 2019

SINGAPORE (Bloomberg) -- A critic of Papua New Guinea’s resource deals has been chosen as the country’s prime minister, a potential speed bump for multi-billion-dollar natural gas export projects led by Exxon Mobil Corp. and Total SA.

James Marape, who resigned as finance minister in April, will become the nation’s new leader after receiving a majority vote in parliament Thursday. Marape has been critical of the gas deal his predecessor signed with a Total-led group of companies, and said his calls to change the nation’s resource laws had been ignored.

In his first comments as prime minister, Marape struck a balance between reassuring international firms that the nation will honor its commitments while seeking greater benefits from its energy, mineral and forestry assets.

“Our resource laws are outdated,” he said in a speech to parliament. “We do not intend to chase our investors. They’re here to stay, we encourage them. But we will look into maximizing gains from what God has given this country, from our natural resources.”

Total and Exxon reached a deal with the government in April that moved forward their efforts to double gas exports from the Pacific nation. The recent political turmoil will likely delay, but not threaten, that $13 billion project, analysts said this week after Marape’s predecessor, Peter O’Neill, announced his resignation.


“It’s almost certain that Marape will look to re-open discussions on the memorandum of understanding between the PNG government and Total,” Jonathan Pryke, director of the Pacific Islands Program at the Lowy Institute, said by email after the election. “I don’t, however, expect there to be major shifts in policy. He will have to make some changes to put his own stamp on the leadership, but overall policy settings should remain unchanged.”

Negotiations with the new government may delay the LNG expansion by a few months, but it won’t have a material impact on the big picture, according to Kevin Gallagher, managing director of Santos Ltd., which has a stake in the expansion.

“This debate is about getting the right balance of agreement so that the Papua New Guinea stakeholders get a fair return from these projects, and we’re keen to get that balance right as well,” Gallagher said in an interview Thursday.

‘Opportunistic’ politics

Exxon said that it doesn’t comment on political matters, but remains committed to its long-term plans for PNG and looks forward to working with the new leadership. Total didn’t immediately respond to requests for comment.

PNG politicians understand that contractual sanctity is important for upstream investors, and renegotiating a deal would cause substantial damage to its reputation, according to Rachel Calvert, an associate director of exploration and production terms and above-ground risk at IHS Markit.

“PNG politics tends to be very opportunistic, with frequently shifting allegiances,” Calvert said by email. “Statements related to particular issues are often motivated as much or more by potential political gains than the issue itself.”

O’Neill, after seven years in power, had been under increasing scrutiny over his dealings with international oil companies and banks as the nation developed its liquefied natural gas export industry.

“We aren’t here to break legally binding project agreements, but those project agreements must be’’ in line with the law, Marape said, referring to current LNG-related deals. “If we find that any project agreement hasn’t fully prescribed to the provisions of law, then we are open to review.’’

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