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MELBOURNE:  France's Total and its partners signed a long-awaited deal with Papua New Guinea on Tuesday that will allow initial work to start on a $13 billion plan to double the country's liquefied natural gas exports.

Developing the Pacific island nation's gas reserves is seen as crucial to its economy as LNG is its biggest export earner, while demand for the fuel is surging globally.

Total's partner Oil Search said the agreement would allow the parties to start engineering and design work for a project dubbed Papua LNG also involving Exxon Mobil.

They now aim to make a final investment decision in 2020, targeting first production in 2024, Oil Search said.

Patrick Pouyanne, chairman and CEO of Total, said the project would further strengthen its position in the Pacific basin and ensure its future LNG portfolio growth.

Australia's Oil Search had first hoped the agreement with the government would be sealed in 2018, as the partners race LNG projects in Canada, Mozambique, Qatar and the United States to meet an expected supply gap in Asia in the early 2020s.

The agreement was delayed after an earthquake hit PNG in February 2018, which sapped government resources and slowed negotiations over issues such as how much gas from Papua LNG would be reserved for the domestic market.

Papua LNG plans to develop the Elk and Antelope gas fields to feed two new production units, or trains, to be built at the PNG LNG plant run by Exxon Mobil.

Total said the Papua LNG project of 5.4 million tons per annum (Mtpa) capacity will consist of two LNG trains of 2.7 Mtpa capacity each and will unlock more than 1 billion barrels of oil equivalent of natural gas resources.

At the same time, Exxon Mobil plans to add a third train at PNG LNG, to be fed with gas from its existing fields and a new field, P'nyang, down the track.

INEVITABLE EXPANSION

Together, Papua LNG and the Exxon Mobil expansion are set to roughly double exports from the PNG LNG plant to 16 million tonnes a year. Analysts estimate the overall expansion will cost around $13 billion.

"It has taken longer to get the gas agreement signed than expected. But it is completed and on reasonable terms. LNG expansion is now inevitable," Bernstein analysts said in a note.

An agreement on the P'nyang development is expected to be signed in the current quarter, said a spokesman for PNG's state-owned Kumul Petroleum.

"Dialogue is ongoing with the PNG government to conclude the required gas agreement for the P'nyang project," Exxon Mobil said in an emailed statement.

Under the deal signed on Tuesday, the government will gain a 22.5 percent equity stake in the Papua LNG project.

Total, Exxon and Oil Search have agreed to shoulder the government's share of the costs incurred until a final investment decision is made.

"We are particularly pleased that the joint venture partners have agreed to assist Kumul ... and that brings certainty to (Kumul) exercising its full equity entitlement of 22.5 percent," Kumul Petroleum Managing Director Wapu Sonk said in a statement.

However, the government will have to fund its equity share of the projects, which would be roughly $900 million, assuming construction is 70 percent debt financed.

The agreement requires the companies to reserve around 5 percent of the gas for the domestic market, a key provision to boost power supply in the impoverished South Pacific nation.

Copyright Reuters, 2019