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crunch time

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    Crunch point for PNG pipe dream
    James McCullough
    AFTER years of negotiation the $6.8 billion Papua New Guinea gas pipeline is on the brink of becoming a reality in a move that will transform the economy of north Queensland.

    The pipeline will ship gas from the Hides and Kutubu fields in PNG beneath the Torres Strait into Cape York, down through the centre of the Cape, onto the east coast of Queensland ending up at Townsville and then linking from Rockhampton to Brisbane.
    It is understood the world's largest oil company, Exxon, a major pipeline player, and Oil Search, are close to securing deals which will eventually push the project over the line.
    Queensland Premier Peter Beattie jets out to Port Moresby this afternoon and is due to hold talks with both Exxon and Oil Search tomorrow morning, a move insiders say means the pipeline deal must be getting close.
    PNG's director for privatisation, Masket Iangalio, has also been in Sydney this week negotiating to progress the venture which appears to have been given added boost by Woodside's decision not to seek onshore sales for its Sunrise LNG project in the Timor Sea.
    "We are now close to the short strokes," the chairman of Oil Search, Trevor Kennedy, told The Courier-Mail yesterday.
    "Exxon has been beavering away at a frantic pace to get the customers across the line," he said, describing the pipeline as a "company-making deal" for Oil Search.
    Mr Kennedy said Oil Search remained optimistic about the prospects of the pipeline proceeding, but stressed that customers obviously had to come on board before the end of the year because otherwise the base load customer AGL would have to start looking elsewhere.
    "We are now at the total crunch point. It will either happen or it will not and we are optimistic of news within the next two weeks," he said.
    The Oil Search chief denied sovereign risk in PNG was a major negative for the players involved, stressing that sovereign risk had always existed for mining companies doing deals in PNG.
    "The pipeline itself is fairly impenetrable and it will be under the ground," he said.
    "PNG has been going through some difficult times and this is typical of the Third World, but on the flip side is very cheap energy supplies.
    "PNG is our neighbour and the most fantastic thing Australia can do for PNG is the pipeline."
    Premier Beattie has long supported the project on the assumption that it stacked up economically.
    A spokeswoman for Mr Beattie yesterday denied the Port Moresby trip signified the pipeline falling over.
    She said the Premier was attending briefings with Exxon and Oil Search representatives, receiving an update on the status of the project.
    Ongoing delays and endless negotiations have over the past few years cast a cloud over the future of the project.
    One difficulty for the major players involved has been the numerous layers of approvals required – government approvals, construction approvals for the various stages of the pipeline and supplier approvals combined with negotiations with the various shareholder groups involved.
    "It is an amazingly complex procedure but it now looks like things are coming to a head," one analyst said.
    Additional pressure for the pipeline proceeding has come about due to PNG's deteriorating financial position and Queensland's regional economic woes.
    The PNG kina has depreciated about 500 per cent over the past decade from being worth $A1.60 some 10 years ago to just A30¢,
    It also comes at a time when the north Queensland economy is suffering from the collapse of Ansett, the gold and mining sectors generally being in the doldrums, the drought and a cattle price slump.
    The close of the Kidston gold mine last year meant the loss of 240 jobs which had a major negative flow-on effect in the region.
    The PNG Minister for Petroleum and Energy, Moi Avei, came out last week and confirmed that 50 per cent of the customers had already been signed up and that the Government had been assured of the balance.
    Likewise PNG Prime Minister Michael Somare has described the project as the Government's "number one priority". As a spin-off to the deal there has also been speculation that the PNG Government is considering exiting its shareholding in Oil Search.
    The PNG urgently needs funds to pay back a bridging loan from the Australian Government brokered under former prime minister Mekere Morauta and a sale of its 18 per cent stake in Oil Search would certainly come in handy.
    This may attract one of the major international petroleum players in to the equation which would prove a boost to the deal.
    Although another one of the so-called "Seven Sisters" of global oil giants, Chevron, had made a decision about a year ago to take a back seat on the project to focus on its central Asian projects, it is believed Exxon remains keen to proceed.
    Even going back two years the then director of Chevron's PNG Gas Projects, Dr John Powell, who has since left the group, denied the pipeline was in danger of collapsing.
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