After cost negotiations brought capital expenditure down by $US4 billion, the Papua LNG project is positioned for a final investment decision in 2026.
After weathering delays and a projected cost blowout in early 2024, Papua New Guinea’s (PNG) Papua LNG project is finally approaching the long-awaited finish line.
Engineering contracts worth billions are expected to be awarded over the coming six months, a critical environmental permit has been secured, and financing arrangements are falling into place. Total Energies EP PNG managing director Arnaud Berthet has said the project’s final investment decision is now in full view.
This signals a dramatic turnaround for a project that less than two years ago appeared stalled by “unacceptable” cost estimates from suppliers and regulatory uncertainty.
The Papua LNG development, which will add 5.6 million tonnes per annum of liquefied natural gas production capacity using infrastructure adjacent to existing LNG facilities, has overcome significant hurdles in recent months.
Project partners have successfully renegotiated engineering, procurement and construction contracts to bring capital expenditure down 22 per cent. The Conservation and Environment Protection Authority has granted crucial Level 3 environmental permits.
And while a final investment decision remains contingent on completing a development forum now scheduled for the first quarter of 2026, the other major commercial and technical obstacles that had plagued the project appear to have been resolved.
Bringing costs back to Earth
The road to this point has been anything but smooth.
When engineering, procurement and construction firms submitted their initial bids in late 2023, project partners were confronted with capital expenditure estimates that Berthet described as “absolutely unacceptable”. The swollen costs prompted joint venture partners to postpone a final investment decision that had been targeted for early 2024 and return to the drawing board.
Rather than abandon the project or proceed with uneconomic terms, the partners – TotalEnergies (40.1 per cent ownership and the project operator), ExxonMobil (37.1 per cent) and Santos (22.8 per cent) – took the bold step of reopening the bidding process to a broader pool of contractors, including Asian firms that could offer more competitive pricing.
Those renegotiation efforts have proven successful.
PNG Prime Minister James Marape recently indicated that project costs are now targeted at closer to $US14 billion, a reduction of roughly $US4 billion from the original bids. This breakthrough represents far more than accounting gymnastics; by bringing capital expenditure back into a range that makes commercial sense for the partners, while still delivering substantial benefits to PNG, the renegotiation has preserved the project’s viability and kept it on track.
Marape said the willingness to restart the engineering, procurement and construction tender process, rather than proceeding with inflated costs or walking away entirely, demonstrated the partners’ long-term commitment to PNG and their confidence in the project’s fundamentals.
It also reflected the competitive dynamics of the global LNG construction market, where different regions and contractors can deliver vastly different cost structures depending on their experience, capacity and approach to project execution.
Navigating the regulatory pathway
While commercial negotiations have dominated headlines, Papua LNG has also been making critical progress through the country’s complex regulatory framework.
The Conservation and Environment Protection Authority recently granting Level 3 environmental permits for the upstream and downstream components of the project was considered a major milestone. It is one of four elements required before Papua LNG can obtain the critical petroleum development licence.
The environmental permit represents years of assessment and consultation, covering everything from the project’s impact on marine ecosystems along the 320km pipeline route to air quality management at the processing facilities.
The remaining requirements for a petroleum development licence include approval of the project’s development scheme by the Ministry of Petroleum, a national content plan (which has already been submitted to regulators), and completion of a development forum.
It is this final requirement that represents the most significant remaining regulatory hurdle before a final investment decision can proceed. The forum will bring together the project participants, the PNG Government, landowners and local-level governments to negotiate benefit-sharing arrangements for the life of the project.
Originally scheduled for the fourth quarter of 2025, the development forum has been pushed back to avoid clashing with local level government elections in late October. The forum is now expected to take place in the first quarter of 2026.
Papua LNG’s design leverages significant advantages from its proximity to the country’s existing LNG infrastructure. The project will draw gas from the Elk and Antelope fields in Gulf Province through a largely offshore pipeline connecting to processing facilities at Caution Bay, around 25km northwest of Port Moresby.
The development will include nine production wells feeding gas to three new electric liquefaction trains. Additional gas will be processed through two existing PNG LNG trains, bringing total export capacity to 5.6 million tonnes per annum.
The choice of electric-driven liquefaction trains represents a modern, more modular approach compared to gas-turbine technology used in many older LNG facilities. This design offers both operational flexibility and a reduced carbon footprint for the project.
Environmental credentials are further enhanced by the project’s carbon capture and storage capability. Carbon dioxide extracted during processing will be reinjected into sub-surface reservoirs, reducing emissions by around one million tonnes per year.
By building adjacent to the existing facilities, Papua LNG avoids the massive infrastructure costs associated with greenfield developments. The project can utilise existing port facilities, some utilities and established logistics networks.
ExxonMobil, which operates the existing PNG LNG project, will construct and operate the Papua LNG facilities on behalf of TotalEnergies and the joint venture partners, an arrangement that provides operational continuity and efficiency.
This brownfield approach has been central to making the project economics viable. Rather than constructing entirely new infrastructure in a challenging environment, Papua LNG builds on proven systems and facilities, reducing capital costs and execution risks.
Beyond the technical and regulatory workstreams, TotalEnergies and its partners are currently advancing financing arrangements. The joint venture is working closely with banks and export credit agencies to complete the necessary due diligence processes. At the same time, the partners are finalising long-term sales agreements with prospective LNG buyers in Asian markets, where demand for natural gas as an energy transition source is strong.
PNG’s national interest in the project is written into the ownership structure. Under a specific set of “back-in” rights, state-controlled Kumul Petroleum can acquire up to 22.5 per cent equity of the project from the point that the Petroleum Development Licence is granted.
Marape has indicated the government will secure a significantly higher revenue share than achieved in the original PNG LNG project.
With engineering contracts imminent, the development forum scheduled for early 2026, and financing arrangements progressing, Papua LNG’s long journey toward final investment decision appears to be reaching its conclusion.
After years of preparation and some intensive renegotiations, the project is positioned to reshape PNG’s energy sector for decades to come.
