GLOBAL and local financial experts have expressed concerns at the state of Papua New Guinea’s economy in the face of continued delays to a number of world-class resource projects.
The mood has darkened further with the PNG Government’s decision to walk away from negotiations on the P’nyang development, a key piece the proposed expansion of the country’s LNG industry. There have also been delays in negotiations for the giant Wafi-Golpu gold-copper mine development.
PNG’s economy continues to face “economic headwinds” resulting from global and domestic economic uncertainties, according to the latest World Bank economic update for the country.
The World Bank said that PNG’s GDP growth, which rebounded to 5.6% in 2019, is expected to fall and hover at around 3.0% on average between 2020¬ and 2022, posing many negative risks, including exposure to unexpected external shocks or potential domestic political and economic turbulence.
“PNG’s growth outlook remains positive, but projected GDP growth rates are lower than our previous forecasts, mainly due to delays in finalising agreements and launching large new resource projects,” said Ilyas Sarsenov, World Bank Senior Economist for Papua New Guinea.
Interestingly, the World Bank highlighted how PNG’s economy had started to rebound thanks to the extractive industries
“Papua New Guinea’s economy has started recovering from a series of external shocks, but its growth outlook remains fragile due to rising uncertainties,” the report found.
“The recovery is being observed in the resource sector, mainly in its extractive segment dominated by liquefied natural gas (LNG), while growth in the non-resource economy remains subdued due to sluggish domestic demand.
“Real GDP growth dropped gradually from 13.5% in 2014 to a contraction of 0.5% in 2018, following the end of the LNG-led construction boom by 2014, the commodity-price shock and a negative El Niño impact in 2014–16, and a 7.5-magnitude earthquake that led to a temporary production shutdown in the extractive sector in the first half of 2018.
“Real GDP growth is forecast to jump to about 5.6 percent in 2019, following a recovery in extractive-sector production, and hover between 3.1-3.5% in 2020–21, supported by proposed investments in several large resource projects.”
The World Bank report also noted that a growing oversupply in the global LNG market may also influence revenues in the extractive sector, with some negative implications for the non-resource economy
Closer to home, the Bank of South Pacific (BSP) has also raised concerns about the economic effect of the major project delays.
BSP Group CEO, Robin Fleming, recently stated that the global outlook coupled with delays to key domestic resource projects, present a challenging period for PNG and its government to navigate,
While releasing the bank’s Economic & Market Insight December quarter publication recently, Mr Fleming highlighted the potential impact of uneven global economic growth on the PNG economy with the following salient points supporting BSP’s views as presented in the quarterly publication. They included:
• PNG’s economy is forecast to moderate in 2020 to 2.8%, after its 2019 growth recovery of around 5.0%[, when output in the extractive sector returned to pre-earthquake levels.
• The softer 2020 growth outlook is driven by slower growth in the extractives sector with some counter balancing growth from the non-extractives sector.
• Delays to key domestic resource projects are likely to negatively impact PNG’s growth over the short-term, with P’nyang negotiations called off and Wafi-Gulpo negotiations yet to recommence.
Meanwhile, leading energy industry analysts Wood Mackenzie believe the recent announcement that PNG Prime Minister James Marape to halt negotiations on the critical P’nyang gas development is a concern for the country’s LNG expansion plans.
Despite trumpeting the country’s potential to significantly grow its LNG production numbers in coming years, PM Marape announced at the end of January that negotiations on the P’nyang Gas Agreement had been put on hold, creating consternation for PNG gas developers and industry followers alike.
On hearing of the PM’s decision, Wood Mackenzie research director Angus Rodger, said the lack of positive momentum for an FID around the PNG expansion is concerning and could mean the country could miss a window of opportunity.
“Given the waves of new LNG that have been sanctioned over the last 18 months, and with more in the pipeline to reach FID in 2020, PNG expansion is slipping further and further to the back of the queue,” Mr Rodger said.
“From both a macro pricing and a contractor quality/ pricing perspective, trailing in the wake of the biggest wave of new LNG supply the industry has ever seen is not ideal.”
However, Mr Rodger did add that while the abandoning of P’nyang negotiations certainly means LNG expansion will be delayed, it may not mean the overall development has been derailed.
