04 March 2018, Tokyo/Melbourne — ExxonMobil Corp has declared force majeure on exports from its Papua New Guinea liquefied natural gas (LNG) project, which has been shut since a powerful earthquake on Monday, an industry source familiar with the matter said on Friday.
At least 31 people were killed by the 7.5 magnitude quake, and Prime Minister Peter O’Neill has declared a state of emergency across the remote highlands region as rescuers struggle to reach villages buried by landslides.
Exxon shut its $19 billion LNG facility, the country’s biggest export earner, amid fears of damage to gas field infrastructure and the pipeline that carries gas to the coast.
Exxon declined to comment on Friday on whether it had invoked force majeure. A company spokeswoman reiterated that the company was focusing on assessing damage from the earthquake, a process that“is expected to take time particularly given the damage to roads and other infrastructure.”
“We are continuing to work with our customers to minimize the impact on their business,” ExxonMobil PNG said in emailed comments, adding that its commercial arrangements were confidential.
Exxon had earlier told buyers that the plant’s two LNG trains would be shut for at least seven days.
The PNG LNG project has been producing at around 20 percent above its rated capacity of 6.9 million tonnes a year. Asian LNG market sources say there are concerns about a possible extended shutdown, which could affect not only the project’s four main buyers but also other buyers in Asia.
“It is difficult to assess the duration of production outages, but in our view, given the location and magnitude of the earthquake, as well as the scale of the aftershocks, we anticipate at least a month’s downtime is likely,” UBS analysts said in a note this week.
Uncertainty around production from PNG has drained liquidity from Asia’s spot LNG markets with buyers and sellers taking a wait-and-see approach before committing to trade, a market source said.
This is reflected in the wide bid-offer spread on the forward-month contract for April, he added.
The PNG LNG project is considered one of the world’s best-performing LNG operations. Exxon said earlier this month that together with its partners, France’s Total SA and Australia’s Oil Search Ltd, it plans to almost double the facility’s export capacity to 16 million tonnes per year.
PNG LNG’s long-term buyers are top global LNG buyer JERA, Osaka Gas, Taiwan’s CPC [CHIP.UL] and China’s Sinopec [SASADZ.UL]. JERA is a fuel joint venture between Tokyo Electric Power and Chubu Electric Power.
*Osamu Tsukimori & Sonali Paul; Oleg Vukmanovic; Editing: Christian Schmollinger & Richard Pullin – Reuters