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Papua New Guinea’s economic development has long been underpinned by its resource wealth, but a change in May 2019 has created fresh momentum for diversification. Since his election, Prime Minister James Marape has made clear his intention to secure greater revenue for the government from future extractive projects, with the aim of nurturing economic growth and investing in human capital development. As such, his first year in office has seen protracted negotiations on major new liquefied natural gas (LNG) projects. Given the country’s limited access to electricity, and abundance of untapped hydrocarbons and renewable resources, there is considerable investment potential in the sector – albeit with risks commensurate to the rewards.

Regulation & Oversight

In terms of upstream exploration and production, the Department of Petroleum and Energy (DPE) is the main regulatory body, guided by the Oil and Gas Act of 1998 and the Oil and Gas Regulation of 2002. The 1998 act is a comprehensive framework governing all aspects of the exploration, production, processing and transportation of oil and gas in PNG and its offshore areas, including rules relating to benefit sharing, royalties and fees.

In February 2020 the Treasury released for consultation amendments to the Income Tax Act that included changes to depreciation calculations and a reduction in the additional profits tax uplift factor from 15% to 13%, both of which are expected to impact the sector.

In June 2020 Parliament passed amendments to the Mining Act, which provides a legal basis for the government to apply for a tenement and develop a mine. Prior to this, only allowed foreign investors were able to be involved in mining. In the same month amendments to the Oil and Gas Act were passed, with the aim of ensuring that extractive projects offer a greater share of revenue for the government.

The Oil and Gas Act gives the state the right – but not the obligation – to acquire a stake of up to 22.5% in any petroleum project in the country. It exercises this right through the national oil and gas company, Kumul Petroleum Holdings. The company has a 16.8% stake in the country’s flagship $19bn PNG LNG project, which came on-line in 2014 and is led by ExxonMobil.

In 2019 Wapu Sonk, managing director of Kumul Petroleum Holdings, issued a public statement announcing the company’s intent to claim its full equity stake in future LNG projects. It will retain 20.5% and keep the remaining 2% for landowners and provincial governments until production commences. This was the case in the negotiations for the Total-led Papua LNG project, which was initially concluded in April 2019. The agreement for the $13bn facility was subsequently cleared to proceed in September 2019 following discussions with the new government (see analysis).

Licensing Changes

The DPE does not yet issue production-sharing or service contracts. However, after the passage of the amendments in June 2020, Kerenga Kua, minister of petroleum and energy, told Parliament that a new bill will be introduced proposing a move from a concession-based licensing system to a production-sharing arrangement. Speaking to OBG, Sonk said that the new legislation could result in upstream licensing shifting from the responsibility of the DPE to Kumul Petroleum.

There are currently three types of licences available to investors seeking to engage in upstream exploration, development and production activities: the petroleum prospecting licence, for applicants intending to explore for petroleum; the petroleum retention licence, for applicants wishing to retain presently non-commercialised discoveries; and the petroleum development licence (PDL), for applicants intending to develop oil and gas fields. These licences are valid for up to six years, five years and 25 years, respectively. The application process for each licence is similar, with an interested party making a written application to the director of the DPE, which is then reviewed by the Petroleum Advisory Board and recommended for approval or rejection to the minister of petroleum and energy. Once granted, licences can be extended with ministerial approval. An agreement between the prospective licensee and the state is required before a PDL is granted. These agreements cover a broad range of fiscal conditions and provide applicants with the opportunity to negotiate favourable terms.

Most of the key amendments passed in June 2020 concern PDLs. If petroleum production under a proposed PDL is deemed likely to be of national significance, the petroleum and energy minister has the right to impose a minimum expected level of return for the government. The minister may also refuse to grant a PDL even in cases where a current licensee has discovered petroleum and submitted a valid application. These amendments give the state more scope to generate sufficient fiscal returns, but create a degree of uncertainty for investors.

Under the amended Oil and Gas Act, the scope of oil and gas agreements has been reduced, which means that they can no longer be used to fix a fiscal regime for the lifespan of a project. Furthermore, the state is not required to strictly comply with its obligations under the agreements. These amendments do not apply to any existing hydrocarbons projects, but they will strengthen the government’s position in the ongoing negotiations to develop the P’nyang gas field, which would be operated by ExxonMobil.

Power Structure

The DPE’s Energy Division is responsible for overseeing electricity provision. The state-owned utility company PNG Power is licensed under the Electricity Industry Act of 2002 to generate, transmit, distribute and market electricity in PNG.

In January 2019 the World Bank estimated that around 20% of PNG’s population has access to grid or off-grid electricity, although other estimates place the electrification rate as low as 13%. Electricity supply is mainly concentrated in urban areas, and difficulties remain in reaching rural communities. According to the Asian Development Bank, 12% of the country’s total population was connected to the national grid, while only 4% of rural residents have grid access.

Although the country does not have a nationwide power grid, PNG Power’s portfolio includes two grids serving the main urban centres in Port Moresby and the Lae-Madang-Highlands area. An additional 26 smaller areas are serviced using independent power systems. In total, PNG Power has 390 MW of installed generation capacity and has entered into power-purchase agreements to receive approximately 38% of its supply from independent power producers (IPPs). Additionally, large-scale industrial projects, such as mining sites and agri-businesses operating in remote areas, often establish their own generation facilities and provide power to local communities.

Performance & Planning

While policymakers are focused on long-term economic diversification, extractive industries still underpin PNG’s economy. According to the most recent World Bank data, in 2018 extractive activities – which comprise mining, quarrying, and oil and gas – accounted for 28% of GDP and 84% of exports. Crude oil and LNG contributed around two-thirds of extractive sectors’ contribution to GDP. In 2018 the sector represented 10.1% of government revenue, in the form of corporate income tax and dividends. The export revenue generated by extractive activities is especially important as the country has long faced a chronic shortage of foreign exchange (see Economy chapter).

Although LNG dominates the upstream segment, PNG was previously known for oil. Oil production began in 1992 and peaked the following year at 126,000 barrels per day (bpd). By 2018 production fell to 11,602 bpd, and that year Oil Search reported that PNG had proven crude oil and condensate reserves of 51.1m barrels. With oil prices slumping as a result of weakened demand amid the Covid-19 pandemic, Oil Search indicated in May 2020 that it was considering cutting production from July. However, Keiran Wulff, the company’s managing director, told OBG that he does not expect that PNG will be faced with production cuts. Also in July the company announced it would write off $380m worth of exploration assets in PNG.

Since the PNG LNG project came on-line in 2014, LNG has been the country’s main energy export. The “2020 World LNG Report” published by the International Gas Union found that PNG exported 8.2m tonnes of LNG in 2019, representing 2% of the global market. The PNG LNG project has committed to exporting a total of 7.9m tonnes per year to clients in Asia through medium-and long-term agreements. In 2019 it produced a record gross total of 8.5m tonnes, up 2% from its previous record of 8.2m tonnes in 2017.

According to the “BP Statistical Review of World Energy 2019”, PNG’s proven natural gas reserves stood at 6.4trn cu feet in 2018, representing around 0.1% of the global total. That year PNG had a reserves-to-production ratio of 17.8 – this figure equates to the estimated number of years of production remaining.

Plans have been made to commercialise more of PNG’s gas reserves through a three-train LNG expansion at the PNG LNG plant. One train would be fed by gas from the P’nyang field and two would be fed by the Total-led Papua LNG project at the Elk and Antelope fields. Combined, these developments would double PNG’s LNG production capacity, but uncertainty remains as negotiations on the fiscal terms of the P’nyang expansion are yet to reach a conclusion. In July 2020 the situation was further complicated when Total and ExxonMobile demobilised the majority of their technical and commercial staff due to the effects of the Covid-19 pandemic on oil and gas prices. In 2019 PNG was one of 10 countries that utilised more than 90% of its LNG production capacity, recording the third-highest utilisation rate in the world. The new trains would also allow PNG to expand its trade in LNG with the rest of Asia, the world’s largest regional market in terms of demand.


Although the electrification rate remains low, concerted efforts are being made by policymakers and development partners to boost generation capacity. With the help of the World Bank, PNG developed the National Electricity Rollout Plan (NEROP), with the aim of extending electrification to 70% of the population by 2030. NEROP estimates that electricity demand will grow by 300 MW between 2018 and 2030 through increased connections and new extractive projects. Taking into account PNG’s geography, grid electrification will be used to provide 75% of the country with power, while off-grid solutions will be used to reach the remaining 25%.

The power sector received a boost in 2018 when PNG chaired the APEC forum, which saw PNG, Australia, Japan, New Zealand and the US agree to collaborate on reaching 70% electrification by 2030. This resulted in the creation of the PNG Electrification Partnership (PEP), which will also review the tariff system. When the deal was announced in November 2018, the headline investment figure was reported to be $1.7bn, and all stakeholders vowed that projects would be transparent and financially sustainable.

However, the extent to which the PEP has succeeded in adding new generation capacity was not fully apparent as of June 2020. In late May that year Prime Minister Marape met with senior officials from the four other participating nations to discuss their progress. Following this meeting, local media reported that a total of PGK1bn ($294.9m) had been committed by the partnership since it formed, and current activities were primarily focused on extending the main electricity grids, connecting households across various provinces and introducing off-grid projects to more remote regions of the country, where power plants and grid connections are less bankable.

The partnership stated that they were also accelerating efforts to support state players such as PNG Power and the Independent Consumer and Competition Commission, which regulates electricity tariffs. Meanwhile, in 2019 Australia launched the Off-Grid Electrification Programme in PNG with the aim of providing rural households, community facilities and businesses with reliable and affordable energy, while working with the government and partners on sustainable off-grid electrification models.

In December of the same year PNG Power, in partnership with the International Finance Corporation, launched the country’s first trial of rooftop photovoltaic solar panels for commercial and industrial businesses in Port Moresby. Currently, PNG’s energy mix comprises around 40% hydropower, 37% diesel, 14% natural gas and 9% geothermal energy.



There is potential for PNG to expand the use of domestic gas for local power generation. NiuPower, a 50:50 joint venture between Oil Search and Kumul Petroleum, completed the construction and commissioning of a 58-MW gas-fired power plant in Port Moresby in March 2019. The plant uses gas from the PNG LNG project, and by the fourth quarter of 2019 it was supplying 32 MW to the capital’s electricity grid. According to Oil Search, this is expected to rise to 58 MW by the end of 2020 following the recent completion of an 80-MW transmission line.

NiuPower is one of four founding members of the IP3 group, which has represented the interests of IPPs in PNG since 2018. The other founding members are PNG Biomass, a wholly owned subsidiary of Oil Search, which operates a 30-MW biomass power plant in Morobe Province and will eventually supply 40 MW to the Ramu section of the Lae-Madang-Highlands grid when an adjacent solar farm comes on-line; the independently owned PNG Forest Products, which operates three hydropower stations in Baiune with a combined installed capacity of 14.9 MW, and has a 12.4-MW plant in Bulolo under construction; and South Korean firm Posco International, which has been active in PNG since 1999 and operates a 30-MW internal combustion electric power plant in Lae.

IP3 has since gained a fifth member: Chinese-owned PNG Hydro Development, which is in the process of constructing the PGK640m ($188.8m) Edevu hydropower project in Central Province. Scheduled to be completed by late 2020, the project will generate around 50 MW of electricity to serve Central Province, as well as parts of Gulf Province and Port Moresby.

IPPs can potentially alleviate the burden on PNG Power by ensuring that the debt-laden state-owned enterprise (SOE) does not have to allocate its own capital to expand generation capacity. Sasindran Muthuvel, minister of SOEs, has identified PNG Power as one of the government-owned companies most in need of reform and stated that its future could involve partial privatisation. Muthuvel told local media in November 2019 that PNG Power’s debts were contributing to power outages as the company was struggling to pay its diesel supplier, Puma Energy. A review of the firm’s financial statements from 2015 to 2017 conducted by the World Bank found that it was facing financial issues, which left it unable to carry out the necessary investments to scale up generation and transmission capacity. The multilateral agency flagged that operating costs and expenses of $250m were excessive for a company with 100,000 customers and revenue of $270m. Staff and overheads were the most significant drain of finances, accounting for 34% of the company’s operating expenses in FY 2017. This was followed by fuel costs, which represented 26%.

Renewables & Off-Grid Solutions

Despite its abundance of natural resources, PNG’s electricity tariff is relatively high, at around $0.30 per KWh. One reason for this is the country’s continued reliance on imported diesel, which accounts for 37% of generation capacity. A study by the World Bank found that replacing imported diesel with domestic gas and renewable energy would be the most cost-effective way to raise generation capacity. Hydropower was identified as the most viable renewable option for boosting capacity over the longer term, supplemented by wind and solar.

The Development Strategic Plan 2010-30 aims to meet 100% of local power needs with renewables by 2050. Renewable energy is also the main focus of the National Energy Policy 2018-28, which made clear that both grid and off-grid renewable solutions have an role to play in meeting the sector’s long-term targets.

As of 2018 PNG had 151 MW of off-grid renewable capacity, the sixth-highest in the Asia-Pacific region. In addition, a 2019 report by the International Finance Corporation found that 60% of the country’s population was using off-grid solar technology, with solar lighting and battery-powered lamps effectively replacing kerosene products. This segment has seen exponential growth since 2012, when only 2% of the population used off-grid solar lighting. With the investment required for electricity grid extensions estimated at $1.1bn-1.4bn, and the cost of connection and generation relatively high, off-grid solar solutions are the most feasible options for many rural households.


PNG’s energy and power market offers considerable opportunities for investors who understand the risks involved. In the upstream segment, the disruption caused by the Covid-19 pandemic is likely to encourage the government and energy firms back to the negotiating table for the development of the P’nyang field, which is critical to maintaining the country’s competitiveness in the global LNG market.

In terms of power, meanwhile, there is political will and international support to help PNG reach the goal of 70% electrification by 2030. However, creativity will be needed to mitigate the challenges presented by the country’s difficult terrain, low population density, complex land rights framework and lack of spending power in rural communities. As such, there is scope for global innovators to bring fresh ideas to the table.

Investment opportunities in
Papua New Guinea’s Energy Sector

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