It is well known that the proven Hides gas reserves are sufficient to support a major gas export project. BP pursued the liquid natural gas (LNG) option and before the Southeast Asian crisis of the late 1990s had carried out a number of studies which suggested the preferred option of a pipeline to the north coast, to an export loading facility onshore near Wewak. It then left Papua New Guinea.

Chevron took over as operator of the proposed project and pursued the gas-to-Queensland (GTQ) option. Chevron was not a party to the Hides project, but had realised that its gas reserves in the Kutubu and Gobe fields were insufficient to sustain delivery of the amounts required in the timeframe (30 plus years) to make the proposal economically feasible.

Export of LNG would most likely be more profitable than GTQ, but there is sufficient gas for both projects to go ahead, and the latter seems more likely to proceed in the short term. If GTQ does proceed, it will give Papua New Guinea good returns, especially from the liquids that would be stripped from the gas to be sold to the domestic LNG market and exported separately. Also, the infrastructure that would have to be put in place would put Papua New Guinea closer to being able to pursue domestic utilisation of its gas reserves. At the top of Papua New Guinea’s ‘wish list’ is a pipeline to Port Moresby for power generation.

However, to maximise recovery from the fields they operate and presently have interests in, Chevron would have to produce (‘blow down’) the gas, either by flaring or exporting (they currently reinject the gas). Flaring is perceived to be not environmentally friendly, and in any case would be a waste of Papua New Guinea’s resources. But is gas in the ground, at the expense of tens of millions of barrels of oil also left in the ground, of any benefit to Papua New Guinea in the light of its ongoing financial difficulties? A decision, if required in a few years time on these options, will be difficult for the government and the licensees, but the green-sensitive Chevron will no longer be part of the decision making.

The potential market for gas in Queensland was not initially realised by Chevron. Just as Kutubu and Gobe oil was discovered by others, so was the GTQ option first explored by another company, IPC, which had discovered a large gas reserve (Pandora) in the Gulf of Papua in the 1980s.

Of major concern to would-be purchasers of GTQ must be security and continuity of supply. Unlike coffee, tea, cocoa, copra, timber and even oil, gas supplies have to be guaranteed by the one supplier. There is always an oil tanker on the high seas with a cargo which may be diverted for the right price, at any time, to an alternative port where demand is greatest. In any case, countries and companies usually have relatively large reserves of oil stored to meet most short-term shortfalls in deliveries. Gas cannot be stored and moved around so freely. (One only has to look at what happened in Victoria in 1998 when gas deliveries ceased due to an explosion and fire at Esso’s Longford plant, where gas from the Bass Strait is processed for delivery to the market.)

Meanwhile, however, one may ask, what about oil? The Kutubu fields (Kutubu, Agogo and Hedinia) are being rapidly depleted. Maximum oil production peaked at around 150,000 barrels per day (bblspd) and it is now less than a third of that. Gobe never reached anticipated production of 50,000 bblspd and is currently declining, at perhaps less than 20,000. Moran is now coming up to full production (maybe 30,000 bblspd), some six years after discovery. With perhaps 80,000,000 barrels of reserves the field will be exhausted in less than ten years.

What is going to replace this production? It seems nothing. There have been no new commercial discoveries and there seems to be no will to explore, with the cost of drilling wells now up to $US35 million each (the cost of Esso’s recent Bakari well — which proved to be a dry hole). Cheaper wells have recently been drilled close to existing infrastructure, but even so, such wells seldom come in at less than $US8 million (the cost of Santos’s Bilip, which discovered oil but seems to lack commercial reserves, despite its proximity to the Gobe facility). The main incentive for drilling at present, it seems, is compliance with licence conditions.

The main disincentive to future development is the failure to date of the GTQ project to proceed to front end engineering and design (FEED), due to lack of confidence in securing the required markets in Queensland. The success rate of drilling is about one well in ten being a ‘discovery’; but that one well may not be a commercial discovery, especially if it is gas, which is mainly what has been discovered over the ninety years of drilling in Papua New Guinea. The argument thus goes, if we can’t sell the gas we already have, why drill for more?

The only possible commercial discovery still undeveloped is that at South East Mananda, on the opposite side of the Hegigio Gorge from the Agogo facility (which also processes the output of Moran). To get oil from Southeast Manada to Agogo will be, to say the least, an engineering challenge.

There is still some potential at Juha and Hides, in so far as the three wells drilled on the former anticline and the four on the latter have yet to establish a liquid contact (that is, reach the lowest depth of the gas, where it sits on either water or oil). There are additional new ‘plays’ in the existing fields where the sub-thrust zones have yet to be tested by drilling into the footwalls of Hides, Mananda, Hedinia, Gobe and even Kutubu. Such wells would be expensive, despite being close to roads and other infrastructure, and the drilling fraught with the difficulties of penetrating deep down into the fold belt with its many geological faults creating a drilling engineer’s nightmare.

Maybe, if the rule of law were re-established and government took back more of the responsibilities of governing and providing for its people, explorers might drill these wells. Perhaps some of the old players, who have tried and left after lack of success, might return to try new ideas and plays. Even so, as witnessed in the time gap between discovery and development at Moran, if there were a new commercial discovery tomorrow, it could well be that production would not commence until after all other oil reserves had been depleted some years earlier.

The province has not revealed any mineral wealth to date and there is currently no hard rock exploration taking place. Mount Kare, in Enga, if developed, would have spin-off benefits for SHP. However, I believe the Canadian operator, Madison Resources, is intent on attracting a buyer to take over its exploration licence.