Sydney (Platts)--12Nov2012/229 am EST/729 GMT

The cost of the Papua New Guinea LNG project has blown out to $19 billion from $15.7 billion, mainly due to exchange rate movements and work stoppages related to community issues, operator ExxonMobil said Monday.

The project remains on track, however, to ship its first LNG as scheduled in 2014.

"Foreign exchange is the largest single contributor of the increase [in capital cost] and to a lesser extent, delays from work stoppages due to community disruptions and land access led to increased construction and drilling costs," the US-based major said in a statement.

"Extraordinary logistics and weather challenges also increased costs. In particular, rainfall exceeded historic norms for most of the last two years," ExxonMobil added.

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Separately, project partners Oil Search and Santos said the foreign exchange impact, mainly from the stronger Australian dollar, contributed $1.4 billion of the cost increase, bringing the total realized and estimated impact to first LNG to $2.1 billion since project sanction. Delays from work stoppages and land access issues have added $1.2 billion to the cost estimate, and the adverse logistics and weather conditions have added $700 million, Oil Search said.

"The project team was able to overcome significant delays and still maintain overall schedule through re-sequencing work under unique and very challenging circumstances," said Decie Autin, PNG LNG project executive.

On a more positive note, the capacity of the project's liquefaction facility has been increased by 5% to 6.9 million mt/year, from 6.6 million mt/year originally, through system-wide optimizations, as well as some minor modifications.

"Despite the cost increase, project economics are helped by the 5% increase in plant capacity and approximately 30% increase in commodity pricing since project funding in 2009," Autin added.

"Even including the higher costs, PNG LNG remains a highly robust economic project," added Santos Chief Financial Officer Andrew Seaton.

PROJECT NOW 70% COMPLETE

Santos said the project is 70% complete. The offshore pipeline has been completed, all major process equipment for the LNG plant and pipe rack modules on the LNG jetty have been installed, piling is complete and foundations are under way at the Hides gas conditioning plant, ExxonMobil said.

Drilling is underway on two gas production wells and construction is on track at the Komo airfield, where laying of the runway asphalt is under way. The movement of materials via the Highlands Highway to Hides is also exceeding plan, the company added.

ExxonMobil is meanwhile exploring for additional gas to support a potential third train at the PNG LNG project.

ExxonMobil holds 33.2% of the PNG LNG project, with PNG-focused Oil Search and Australia's Santos holding 29% and 13.5% respectively. The remaining equity is held by the government's National Petroleum Company of PNG (16.8%), JX Nippon Oil & Gas Exploration Corporation (4.7%) and PNG landowner group Mineral Resources Development Company (2.8%).

In incurring a cost blow-out, the PNG project has joined several of the LNG developments under construction in Australia which have been hit by foreign exchange movements and rising costs. The coal seam gas-to-LNG projects under construction in the eastern Australian city of Gladstone have been particularly affected.

The budget for BG Group's 8.5 million mt/year Queensland Curtis LNG project in Gladstone earlier this year blew out to $20.4 billion from $15 billion, and Origin Energy conceded that its A$23 billion Australia Pacific LNG joint venture had also been affected by exchange rate movements. Santos has also been forced to bring forward $2.5 billion in development spending at its 7.8 million mt/year GLNG project, taking the joint venture's initial outlay from $16 billion to $18.5 billion.

More recently, Chevron said it was reviewing costs at its Gorgon LNG project in Western Australia, which was originally budgeted at $37 billion, or A$43 billion, when it was approved in late 2009.

--Christine Forster, christine_forster@platts.com --Edited by Robert DiNardo, robert_dinardo@platts.com

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