Alcan resurrects PNG pipeline at bargain price

CANADA'S Alcan has resurrected dreams of piping Papua New Guinea gas to Australia.
It has agreed to a preliminary deal that might see it source gas for its Northern Territory Gove alumina refinery from small British-based explorer Rift Oil's Douglas project in the lowlands of PNG's Western Province.
Where the likes of Chevron, Oil Search and ExxonMobil have all tried and failed to realise a $US5 billion ($6.25 billion) dream to pipe their abundant PNG gas reserves to Australia's energy-hungry eastern states, Rift is looking to succeed with a smaller-scale $US1 billion pipeline development.

The pipeline, which would cross the Arafura Sea north of the Gulf of Carpentaria, would be tailored to Gove's requirements with first deliveries in 2011.

But the deal is dependent on Rift proving up over the next year its as-yet unproven Douglas gas discovery into a field capable of holding at least 1 trillion cubic feet of gas. Rift and its 35 per cent partner in Douglas, New Zealand-based Austral Pacific, believe that Douglas could hold "several hundred" billion cubic feet of gas with additional targets yet to be drilled. But they still have to carry out appraisal drilling and flow testing over the next 12 months.

Rift's plans are fostered by chairman and 30 per cent owner Ian Gowrie-Smith. Before moving to London 20 years ago to make a name for himself in the pharmaceutical business, Mr Gowrie-Smith floated West Australian ilmenite miner TiO2 Corporation in the 1980s.

Mr Gowrie-Smith says the key advantages of his project are that it does not need to build up a customer base beyond Gove, and that the pipeline does not need to be as long as the canned PNG-to-Australia pipeline project.

"Our potential capacity to supply and their (Alcan's) potential demand are in balance, and we also happen to be the closest potential source of gas that they have ever had," Mr Gowrie-Smith said after confirming the memorandum of understanding with Alcan in Brisbane.

Mr Gowrie-Smith is aiming to prove up the Douglas resource by 2008, which would be the trigger for Alcan signing a binding deal.

Alcan needs about 40 billion cubic feet of gas a year for its expanding Gove refinery, which over a 20-year life equates to some 800 bcf of gas. But Alcan would require Rift to first prove up around 1 tcf before it would sign a binding agreement.

Mr Gowrie-Smith said one TCF of gas and associated concentrate would have a market value of around $US8 billion. But if Douglas is proved up, to realise that potential value Rift will have to raise the money for the project, which for a company capitalised on Britain's Alternative Investment Market at just $66 million could be quite a feat. But Mr Gowrie-Smith is confident he will be able to raise the money.

Alcan is expected to invest in the pipeline. But the project could also be a big beneficiary of the copper price boom. The PNG Sustainable Development Program, a trust into which BHP donated in 2002 its 52 per cent stake in the rich Ok Tedi copper and gold mine in PNG, is also interested in backing the project.

Mandated to invest in developing Western Province, the SDP has plenty of money to invest courtesy of high copper prices. Ok Tedi's revenues jumped 40 per cent last year to $1.86 billion, 120 per cent above 2004 revenues.