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    Oil & Gas report dated 1 August 2002.

    Thursday, 1 August, 2002
    PNG gas project near engineering and design stage
    Brisbane, 1 August, OGT—The Papua New Guinea gas project is close to sealing three crucial contracts in a major coup that will push the scheme into its A$100 million front-end engineering and design stage.

    The PNG Gas project is now believed to be close to signing up key contracts with TXU, Comalco and CS Energy, after missing out on the Townsville power station.
    The A$6 billion project, which has been revived three times, is believed to have won strong support from industry which remains sceptical of the ability of coal seam methane to cope with large industrial demand and wants the volume of gas that PNG can provide.

    TXU needs the gas for the Adelaide and Melbourne markets while Comalco wants about 15 pj for its alumina refinery in Gladstone.

    CS Energy is also understood to want major volumes but for which project remains unclear.

    But the pipeline project must win the critical load contracts before the end of the year if it is to be able to meet a demand by AGL to have about 50 pj of gas for the Sydney market by 2006.

    It needs to sell volumes of about 140 pj to be viable and Queensland's current demand is about 90 pj.

    It is also understood, however, that the A$6 billion pipeline project now believes it can sell more gas in the southern markets than in Queensland which explains why it has opted to send the gas direct to the Moomba hub via Mt Isa.

    That strategy would allow it to link into the east coast gas network and the bigger markets of Sydney and Melbourne.

    Potential customer Queensland Alumina in Gladstone, which is partially owned by Comalco's parent, Rio Tinto, is on the lookout for new supplies.

    It is believed its current supply from the Denison trough will expire in a few years.

    Fertiliser company Incitec is also a likely customer while Mt Isa is also considered to be rich ground for the project, with potential for up to 40 pj.

    AGL has already committed to 50 pj and possibly more for its Sydney market.

    AGL also recently won the bid for Victorian energy retailer Pulse, which will give it a bigger customer base and the ability to buy more gas from the project.

    Comalco has confirmed it was still negotiating for PNG gas through Energex and needed up to 5 pj for calcination and up to 9 pj for processing.

    Oil Search, the major shareholder in the project, refused to comment on the closeness of the negotiations and CS Energy said any negotiations were in confidence.

    While it is understood to be a long-term contract with Santos, industry sources said the government-owned CS Energy was interested in large volumes from PNG.

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