Investors brace for LNG shock
A wave of optimism was about to sweep through the finance sector in Papua New Guinea in 2015 as the country appeared to be on track to reap a revenue windfall from sales of oil this year.
But falling world oil prices in December have put pressure on the profitability of PNG’s new US$19 billion LNG project, which began churning out exports last year to China and Japan, the world’s second and third largest economies.
Last month oil companies associated with energy prices and which have heavily invested in PNG’s LNG project, took a battering on the stock market due to collapsing oil prices. The 3.5 per cent fall in global oil prices hit those companies involved in oil and gas projects as the stock values were wiped off like never seen in the past five years.
Australian companies with interests in energy mining or production like Santos and Oil Search in PNG were massively targeted. Santos lost 17 per cent of value in early December and Oil Search, a company that explores and develops oil and gas deposits in PNG LNG lost 8.5% in just one week in December.
A weakening world economy compounded by increased production of shale oil in the United States in the past six months prompted a marked drop in world oil prices last month. From a top of US$111.87 per barrel of brent crude in June to a low of $78 in early December and $69 before Christmas, the steep decline has raised profit prospects in all industries which are oil-dependent in the world.
But the oil producing countries like PNG and Australia have been pushed into the raw end of the trade – with low prices against unchanged cost structure of preparing and carting the oil to the consumer countries.
Since construction of the new LNG in PNG, the industry has being touted as the next big mining boom – fuelling renewed interest at a time when investment in mining has been dwindling in the resources-rich country.
PNG’s principal buyer for LNG has been Japan, where the price of the LNG in Japan is intricately linked to the oil price and consequently the falling oil price has put pressure on the viability of the LNG projects in PNG
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