InterOil Corp and Pacific LNG Operations have signed a heads of agreement with Noble Clean Fuels for the supply of one million tonnes per annum (mtpa) of liquefied natural gas (LNG) from the Gulf LNG project in Papua New Guinea (PNG).
The purchase and sale of one mtpa of LNG will be carried out over a period of ten years starting in 2014.
The Gulf LNG project includes Elk and Antelope gas fields and Liquid Niugini Gas, the InterOil and Pacific LNG joint-venture project firm, with modular LNG plants contracted with Energy World.
It also consists of a fixed floating LNG facility being developed with Flex LNG and Samsung Heavy Industries.
InterOil and Pacific LNG intend to complete negotiations and execute binding agreements with Noble later this year.
Ophir Energy plc (Ophir), an Africa-focused upstream oil and gas company, notes the announcement released on 21 April 2011 by the Ministry of Mines, Industry & Energy of Equatorial Guinea of the approval and signing of a Memorandum of Understanding (MoU) relating to the commercial structure of the LNG Train 2 Integrated Project in Equatorial Guinea.
The MoU relates to the alignment of the gas producers, the owners of the gas pipeline infrastructure and the owners of EGLNG Train 1 to develop and implement the LNG Train 2 Project (EGLNG2). Ophir has an established position offshore Equatorial Guinea with an 80% interest as Operator of Block R which covers 1,600km2 and contains the significant gas discoveries Fortuna and Lykos. In 2009 Ophir acquired 1,000km2 3D seismic survey data of the area and has a high impact drilling campaign in place for 2011.
“MALABO, 21 APRIL 2011 SIGNATURE OF MEMORANDUM OF UNDERSTANDING RELATING TO THE INTEGRATED PROJECT OF LNG TRAIN 2
The Ministry of Mines, Industry & Energy is pleased to announce that a Memorandum of Understanding (MOU) has been approved and signed relating to the commercial structure of the LNG Train 2 Integrated Project in Equatorial Guinea. The MOU was signed by the Ministry of Mines, Industry & Energy, SONAGAS GE (the national gas company of Equatorial Guinea), the partners of Blocks O & I (Noble Energy, GEPetrol GE (the national oil company of Equatorial Guinea), Glencore, Atlas Petroleum and Osbourne Resources Ltd.), the partners of Block R (Ophir Energy and GEPetrol GE), the shareholders of 3G Holding Ltd (Union Fenosa Gas and GALP Energia) and the partners of EGLNG Holding Ltd.
(Marathon GE, Mitsui & Co. Ltd and Marubeni Gas Development Co. Ltd).
The signed MOU relates to the alignment of the gas producers, the owners of the gas pipeline infrastructure and the owners of EGLNG Train 1 to develop and implement the LNG Train 2 Project, using the resources necessary to carry out this Project. The planned FID for this project is 2012 with the first LNG in 2016.”
Ophir Energy plc is a UK incorporated holding company with interests in 17 oil and gas exploration projects in eight different African jurisdictions. The Group’s headquarters are located in London (England), with operational offices in Perth (Australia), Malabo (Equatorial Guinea), Dar es Salaam/Mtwara (Tanzania) and Dakar (Senegal).
Mr Polye has been in Japan for the signing of the investment agreement for the protection and promotion of Japanese investments in PNG. Japanese companies are participating in both the ExxonMobil-led project and the second LNG project operated by InterOil Corporation.
A number of disgruntled landowner groups have already disrupted the construction of the major gas pipeline being constructed for the first LNG project.
In recent months, killings and attacks have been reported in Southern Highlands, raising security concerns about the safety of developers and contractors.
The government has stationed police units in the oil and gas rich region.
Considering everything, I cannot say this is a totally bad move since it is a loan and many of the support jobs for equipment etc., we are told, are here in the US. The problem I have is the hypocrisy of the Obama administration in supporting Brazil’s and now Colombia’s oil field and refinery development, while demonizing the American oil industry and failing to promote and support development here at home. I guess it is most likely not hypocrisy, but a calculated move to enrich one of Obama’s major donors, George Soros.
If we are going to risk billions to develop foreign sources of this evil energy, why don’t we risk a few dollars here at home? Or better yet, get our government out of the way and let private enterprise take over. We could become energy self sufficient within ten years and take away all those dollars from our Arab and Venezuelan “friends”.
Excerpt: The U.S. Export-Import Bank, an independent agency of the federal government, is now planning a $2.84-billion loan for a massive project to expand and upgrade an oil refinery–in Cartagena, Colombia.
The money would go to Reficar, a wholly owned subsidiary of Ecopetrol, the Colombian national oil company.
“This is part of a $5.18 billion refinery and upgrade project in Cartagena, Colombia supplying petroleum products to the domestic and export markets,” the Export-Import Bank said in a statement.
The U.S. government-controlled bank says the $2.84-billion in financing it plans to undertake will be the second largest project it has ever done. The largest was $3 billion in financing for a liquid natural gas project in Papua New Guinea.
The statement released by the bank said that on April 7 the bank’s presidentially-appointed board of directors had “voted to grant preliminary approval for a $2.84 billion direct loan/loan guarantee” for the Colombian refinery project.
Published 4:26 PM, 21 Apr 2011
Oil giant Sinopec on has signed China’s second-largest gas purchase agreement, worth around $US85 billion ($A80.7 billion) over 20 years by one estimate, in a deal that also gives it 15 per cent of the Australia Pacific liquefied natural gas (LNG) project.
ConocoPhillips and Origin announced the deal at a joint news conference overseen by Resources Minister Martin Ferguson.
“Australia very shortly become the second-largest exporter of LNG in the world and we have effectively now got a very important new industry in Queensland,” Mr Ferguson said, referring to the northern state where the project is to be built.
“Deals like this one put Australia on track to be one of the world’s largest suppliers of LNG in coming years.”
“The APLNG project has the potential to significantly expand the burgeoning coal seam gas to LNG industry on Australia’s east coast and cement Gladstone’s place as a key LNG hub.”
Australia has around $US200 billion in LNG projects on the drawing board. Much of their exports are destined for China, which is looking to lock in supplies to feed its rapid growth and cut its reliance on polluting coal energy.
Australia Pacific LNG will have initial capacity of 4.5 million tonnes per annum (mtpa) of LNG, eventually ramping up to 18 mtpa, and is expected to come online at the end of 2015.
Sinopec’s deal to take at least 4.3 million mtpa could be worth around $85 billion if pricing is similar to that of recent coal seam gas supply deals done by Australian gas firm Santos, said CLSA analyst Mark Samter.
The price of $US1.5 billion for the 15 per cent stake is also well above similar deals made recently – state-run Korea Gas Corp (KOGAS) paid just over $US600 million in cash to buy a 15 per cent stake from Santos Ltf and Malaysia’s Petronas .
“That price reflects their view of the value of the project…APLNG is dramatically stronger I think than other projects, and that’s what reflects in that price,” Origin managing director Grant King said.
“It’s a full price… they’ve extracted a decent amount of value for the equity,” Mr Samter said.
The project holdings of Conoco and Origin are now 42.5 per cent each following Sinopec’s equity investment, and the joint venture partners are still aiming to make a final investment decision by mid-2011.
Origin Energy shares were placed on a trading halt on Thursday. Sinopec shares were up 0.9 per cent in Hong Kong.
Mr King in February said the company may sell down more of its stake in the project to future LNG buyers.
He said the joint venture would not give a running commentary on current gas marketing efforts.
But ConocoPhillips senior vice president exploration and production Ryan Lance said APLNG was largely targeting the Asian region.
“The large buyers in Japan and Korea down through China to India as well,” Mr Lance said.
Mr Ferguson said China was Australia’s second-largest LNG customer and the Sinopec deal brought new and existing LNG contracts with the Asian superpower to more than 15 million tonnes per annum.
The APLNG project will involve the progressive development of coal seam gas fields in south central Queensland over a 30-year period and a 450 kilomtre transmission pipeline from the gas fields to Curtis Island near Gladstone, where an LNG facility will be built.
Federal Environment Minister Tony Burke gave the project the green light on February 22.
Welcoming the project, Queensland’s Finance Minister Rachel Nolan said Australia Pacific LNG estimates the annual contribution to the economy of the Darling Downs and Southwest region at up to $900 million during operation.
Ms Nolan said the economy of the Mackay-Fitzroy-Central West region could see an increase of up to $770 million a year during construction.
“On a state level, Australia Pacific LNG estimates the project could stimulate an increase in Queensland’s Gross State Product of approximately $2 billion per annum,” Ms Nolan said.
Chinese demand ramps up
China aims to boost gas consumption to 10 per cent of its total energy use by 2020 as it tries to reduce greenhouse gas emissions by cutting the use of dirtier burning coal. It has spent tens of billions of dollars buying into energy resources from Africa to Latin America.
Energy consultancy Wood Mackenzie has forecast China’s LNG imports to rise five fold to 46 million tonnes by 2020.
Sinopec’s deal will be second only to China’s first LNG import deal sealed in 2002 when China National Offshore Oil Corp (CNOOC) secured 3.7 mtpa of gas from Australia’s Northwest Shelf project for 25 years.
CNOOC, parent of CNOOC Ltd , is the leading Chinese LNG developer with three receiving terminals in operation and another two under construction.
PetroChina‘s two terminals were scheduled to begin operation from April.
The deal will also be Sinopec’s first venture into foreign unconventional gas assets and moves Australia Pacific LNG one step closer to meeting its target of making a final investment decision this year.
Sinopec is building its first terminal in eastern Shandong, which will be fed from ExxonMobil‘s Papua New Guinea LNG project.
The latest deal will enable Sinopec to accelerate work at the proposed 17 billion yuan ($A2.46 billion) terminal in the southern coastal city of Beihai in the Guangxi region, which is expected to open in 2014.
The Beihai terminal will have an initial capacity of three million tonnes per year, expandable to five mtpa by around 2015 when Australia Pacific LNG comes online.
The deal has environmentalists fearing for the future of the Great Artesian Basin.
Friends of the Earth spokesman Drew Hutton said the agreement was bad news for the environment, the Great Artesian Basin and for landowners.
“The federal government water group and Geoscience Australia believe there are going to be dramatic draw-downs (of the water table) in sections of the Great Artesian Basin and the damage could last for hundreds of years,” Mr Hutton told AAP.
The basin is a major source of water for farmers and communities in inland Queensland.
Origin Energy managing director Grant King says he’s confident the project would not harm the basin.
“Our project has done an enormous amount of work in understanding the impact the project will have on water, acquifers and the Great Artesian Basin,” Mr King said.
“The technical work, the engineering and scientific work done by our teams gives us the confidence there won’t be any adverse impacts.”
Mr King said trials were underway to understand issues surrounding water management.
He also said they were treating the unwanted water that comes up during the gas extraction.
“That water is treated and applied for a number of beneficial uses and one of the uses could be reinjection (into acquifers),” Mr King said.
Mr Hutton said CSG companies don’t know what to do with the unwanted water.
“They don’t know how to treat it to an acceptable level at an acceptable cost,” he said.
“They don’t know what to do with the one million tonnes of salt a year that comes to the surface except to wack it into landfill.
“Is it worth disrupting and sometimes destroying the farms that provide our food and fibre?
“The cost of this industry is far too great.”
According to Australia Pacific LNG, at its peak this project will create about 6000 direct jobs in construction, and about 1000 direct jobs in the operational phase of the project.
By Andrew Stone
Twenty years ago, China had four diplomatic posts in the South Pacific.
For a newly elected head of government from the region, the first foreign port of call is likely to be the Great Hall of the People, and not Canberra, Washington or the Beehive.
Does this matter? Perhaps less so now that tensions between Taiwan and China have cooled. Previously intense rivalry between the two drove chequebook diplomacy.
Taipei and Beijing spent years wooing small Pacific nations to sign up to their particular China brand. Taiwan got six forum countries on board, but a truce has existed since the election of President Ma Ying-Jeou in 2008.
But even as the political courtship has softened, money in the form of soft loans and grants continues to pour into the region. Beijing has put up cash to lift trade, build schools and bridges, train senior military officers and in the case of Fiji, fence the president’s palace.
China is one of the region’s top three aid donors, after Australia and the US. A study by the Sydney based-Lowy Institute puts its 2009 aid to its recognised forum members at US$209 million (NZ$267m). Australia, the top regional donor, gave US$650 million to the 14 forum countries. New Zealand gave about US$100 million.
United States Secretary of State Hillary Clinton thinks the West needs to be awake to China in the region. Last month she railed against cuts sought by Republicans to the US foreign aid programme, telling senators: “Let’s put aside the humanitarian, do-good side of what we believe in. Let’s just talk straight realpolitik. We are in competition with China.”
She noted a “huge energy find” in Papua New Guinea by the oil giant Exxon Mobil, which has begun drilling for natural gas. Clinton said China was jockeying for influence in the region and seeing how it could “come in behind us and come in under us”.
She claimed China had taken the leaders of small Pacific nations to Beijing and “wined them and dined them”. “We have a lot of support in the Pacific Ocean region. A lot of those small countries have voted with us in the United Nations, they are stalwart American allies, they embrace our values.”
Foreign policy expert Associate Professor Stephen Hoadley of Auckland University agrees.
“I would call the impact of China mildly disruptive,” he says.
Beijing did not consult countries with a history in the region, and its investments could seem out of kilter with small island needs.
Adds Hoadley: “They can be a little bit corrupt, they often engage in under-the-table favours. That’s why the leaders in the Pacific Islands are very happy to have these shonky projects, they get VIP trips to Beijing, they may get other things though that is unconfirmed.”
He says the Chinese Government was not necessarily culpable, though it might be negligent in that it sub-contracted work to companies which used inferior supplies, cut corners, ignored the local workforce and left behind projects of dubious value.
“A lot more consultation would be welcome,” suggests Hoadley.
But does China have any discernable workplan to displace the traditional Western players in the region for its own national security?
China has been part of the region for more than 150 years. Thousands of indentured labourers worked in plantations and phosphate mines in the 19th century, becoming the ancestors of the small but often successful Chinese communities in most Pacific Island states.
New Zealand Foreign Minister Murray McCully does not see any “unwholesome motives” in China’s Pacific strategy. He argues the equation is quite simple. Pacific states have minerals, timber and fish – and China is a hungry buyer.
He told a high level gathering of China watchers last week in Wellington: “China is simply doing in our neighbourhood what it is doing in every neighbourhood around the globe: undertaking a level of engagement designed to secure access to resources on a scale that will meet its future needs, and establishing a presence through which it can make its other interests clear.”
But McCully wants Beijing – and Taipei – to be more transparent with the money they shower on island states and has urged China to ensure its loans do not burden small nations with debt.
Political scientist Jian Yang, who has book coming out about China’s strategy in the Pacific, expects Beijing’s influence in the region to grow, along with other major players including Japan, India and the US.
New Zealand, he argues, has historic, cultural and economic ties to the region which are not easily replaced.
“What is crucial is for New Zealand to continue its dialogue with China and the other powers.”
So far, concludes Yang, New Zealand has done well.
April 4, 2011 12:13 PM EST
(This story was originally published on March 25, 2011. It has now been re-published to make it in full available to non-paying members at FNArena and to readers elsewhere).
– Japan has an immediate need for LNG – Japan, and the world, may now turn away from nuclear and toward LNG – Australian producers will not benefit in the short term, but should in the long term – US shale gas looms as a possible contender
By Greg Peel
A fortnight ago, investors were sitting back scratching their heads over whether the great Australian liquid natural gas (LNG) bonanza was, or at least threatened to be, a fizzer, long before proposed projects even come close to production. Yes, there is China and India to think about, and long term customers Japan and Korea. But while future demand may be unquestionable, what about the extent of future supply?
It was three years ago when Origin Energy rejected an initial bid from British gas giant BG. The target was Origin’s reserves of coal seam methane (CSM) in Queensland which, like the natural gas being sucked from beneath the ocean off Western Australia, can be converted into LNG for export purposes. This bid came out of the blue and caught investors, and stock analysts, napping. Coal seam what?
A step-jump re-rating of gas stocks followed, particularly of anyone with a CSM interest such as Santos ((STO)) as well as Origin ((ORG)), along with anyone with LNG interest in general such as Woodside ((WPL)) and Oil Search ((OSH)) the latter which, along with Santos, has significant interest in PNG LNG. But then it all came to a screaming halt.
There was the small matter of a GFC, but once China was back on board with a vengeance the GFC didn’t matter anymore. What did matter is the substantial time and cost involved in building the “trains” required to convert either natural gas or CSM into LNG, the long term sale agreements that simply need to be secured to provide both commercial viability and funding, and the sufficient confirmation of available gas reserves needed to satisfy the confidence of potential buyers Here, progress has been slow.
The reasons for slow progress have been many, including project delays, increasing capex costs and even the weather. The biggest problem has been a reluctance from potential buyers. These buyers are reluctant because there is simply so much natural gas in the world, and so many projects under construction or proposed, that gas prices have stagnated and the buyers can pick and choose. There is a race on, both within Australia and across the globe, and not everyone will be a winner. Some proposed projects may need to be scrapped.
At least, that was the state of play prior to the earthquake and tsunami hitting Japan, and the subsequent nuclear scare. Analysts across the globe are now in agreement on two counts: (1) Japan’s lost nuclear capacity will mean an immediate need for alternative sources of electricity generation, and the obvious choice is LNG; and (2) the nuclear scare will cause Japan to rethink its nuclear energy plans and capacity, and may well have a ripple effect across the globe on the same basis. Here LNG also stands to be the big longer term winner.
Nuclear energy is considered “green”although there are plenty of arguments over the amount of energy expended in building a nuclear reactor and mining and transporting the required uranium. LNG is not considered “green” per se, being a fossil fuel, but it is a lot “greener” and indeed cheaper than oil products. It is not cheaper than coal, but coal is the dirtiest of all energy sources.
Japan is the world’s greatest importer of LNG. Japan has no LNG of its own, nor anything much else of its own on the natural resources front, and there is no pipeline delivering natural gas to the island nation. Japan also has a significant surplus of regasification capacity, built with the future in mind as well as for a back-up in times such as these, so it stands ready to quickly restore electricity demand through LNG sources.
[There are two steps in the process of getting natural gas from producer to consumer. The natural gas has to be liquefied for transport, known as “liquefaction”, and then un-liquefied at the other end for consumption, known as “regasification”. It takes years and a lot of money to build liquefaction plants. It takes a lot less of both to build regasification plants.]
In the short term case (1) above, Australia is not in a position to benefit. There is some spare capacity available in the massive North West Shelf project but realistically whatever LNG being produced now is being produced for existing long term contracts. Qatar, on the other hand, has so much excess supply it effectively rations sales in order not to crunch the LNG price, and this year the last of Qatar’s “mega-trains” will be complete.
Qatar sells most of its gas in the Atlantic region at spot but often secures term deals in the Pacific region as well if the price is right. It is Qatar which will thus stand to benefit from Japan’s immediate extra LNG demand as it is the swing player with the capacity to quickly reroute cargoes. Analysts are not factoring in any benefit to Australian gas producers from immediate Japanese demand.
It is the long term case (2) above which is of most importance to Australia. Prior to the quake, Japan satisfied 30% of its electricity needs through nuclear and 30% through LNG, with the balance being coal and other sources. It has now lost 20% of its nuclear capacity – for good it would seem – and analysts agree there is not a big chance the government would look to restoring that balance and probably will completely rethink its future nuclear plans in favour of LNG.
Others may or may not do the same, and there is not an expectation China, which has far and away the greatest nuclear power ambitions, will much change its thinking. China also has huge LNG demand potential and LNG power plans and maybe even it will lean a bit further in the LNG direction now. Either way, Japan alone and a likely dampening of nuclear ambitions globally means expected longer term LNG demand has just been given a substantial boost.
That boost should prove to be the shot in the arm needed for Australia’s plethora of proposed gas projects looking to reach financial decisions on either first trains or additional trains. Gas reserve security has been one stumbling block, but the biggest stumbling block has been contracts with buyers. (Note that we can here also throw in the search for required equity partners, which may mean gas company joint ventures or equity stakes taken by customers, to cover the significant capex funding requirements).
Deutsche Bank has thus rolled out the obvious list of potential Australian winners. They include Woodside with its Pluto expansion and Browse and Sunrise prospects, Santos with its Gladstone LNG expansion and PNG LNG expansion, Oil Search for PNG LNG and Origin with its Asia Pacific LNG project.
We must not forget there are also plenty of other projects underway or proposed in Australia which are foreign-owned. The obvious stand-out is Gorgon, but there is also the substantial Ichthys project in which Japan is a major stakeholder, making it an obvious LNG source. The bottom line is that while service contracts, jobs and taxes are gleaned from all projects, Australian gas companies are still competing with the world in their own country.
Then there is the small matter of US shale gas.
There is a lot about America that boggles the mind, but the fact that there is an oversupply of natural gas in a country that is totally beholden to oil exports from its enemies is right up there. It wasn’t always the case, as years ago there were companies looking to build regasification plants in the US for the importation of LNG to meet rising gas demand. But now the boot is completely on the other foot, notes Barclays Capital, as those companies are now talking about building liquefaction plants so as to begin exporting LNG.
When coal seam methane suddenly hit the front page a few years ago, it wasn’t new, and indeed CSM LNG had been already commercially produced in the US. But at that point a light bulb lit up somewhere, and before we new the fastest growing energy industry in the US became that of shale gas – a not dissimilar concept. It is the “undisputable success” of shale gas development, notes Barclays, that could make the US a viable LNG exporter for the first time.
That’s not news Australia wants to hear. Since 2009, notes Barclays, a record number of liquefaction facilities have come on line in a short period. Initially, LNG flooded a market which saw demand suddenly drop as a result of the GFC, and for two consecutive years the world has been able to produce more LNG than demand growth could account for. Demand has been reflected in the construction of regasification plants, which have not kept pace.
But as noted, regasification plants can be built in a much shorter time frame than liquefaction plants, and expected demand growth from the likes of China and India, and now Japan, means the tide will shortly turn. Global gas demand increased by 60% from 1990 to 2010, and that rate is expected to accelerate as new residential and commercial demand opens up. Barclays now estimates that the Japan effect alone will bring LNG demand and supply roughly into balance this year.
Analysts had already assumed a deficit situation would be reached some time before 2014 given the timing gap between the projects which came on line by 2009 and the next wave of new projects under construction which would take a few years to go online. It is in 2014 that supply is expected to commence from the Curtis and Fisherman’s Landing CSM LNG projects in Queensland, the Gorgon project in Western Australia, as well as Indonesia’s offshore Donggi Senoro project.
Between 2014 and 2016 or later, we will see another wave of Australian supply (assuming they all go ahead) from the likes of APLNG, PNG LNG, Pluto, GLNG, and perhaps Browse and Sunrise, among others. “The uncertainty on their commissioning times,” says Barclays, “is too great to bear a reasonable significance in our analysis. Most of the ones targeting FID [financial investment decision status] in the next two years are still searching for buyers”.
The Japanese disaster has distorted the picture, such that Barclays sees liquefaction capacity falling far short of regasification capacity growth in the 2012-13 gap. The majority of regasification growth will come from Asia, but Europe should come in second. (Note that all of Europe occasionally suffers from natural gas shortages when Russia turns off the pipeline to meet demand at home). The picture then changes quickly again in 2014-15.
This is the window of opportunity for all gas hopefuls, from WA and Queensland on to the US shale gas fields to capture the buyers. Even if there were enough demand, with Japan a new element, to make all Australian projects viable, the entry of US shale LNG would quickly rebalance the global market, Barcalys suggests.
But it may not be until 2016 before the first US shale LNG hits the market. Australia, notes Barclays, “has the lead”, and US shale might find a market already in balance.
Beyond that, Barclays believes China’s potential LNG demand growth is “seemingly boundless”. India’s gas markets are growing rapidly as well. Japan (pre-quake) and Korea have already been making the shift away from petroleum products and towards natural gas while in Europe and North America, natural gas is far cheaper than petroleum products and as such competing with coal for power generation.
On the counter side, China and India may well be able to source their own shale gas. India has large offshore gas reserves yet undeveloped. China also has pipelines being built from gas suppliers in Iran, which owns the other half of Qatar’s vast Persian Gulf supplies, and the former Soviet Union. There are also alternative energy developments to consider.
Either way, and as tragic as the situation has been, the Japanese earthquake may just be the catalyst a seemingly foundering Australian LNG market might need. Stock analysts have long priced in the potential for earnings growth once various projects reach production, while acknowledging the risks of finding enough gas, finding enough money, finding joint venture partners, and the simple, obvious risks of massive infrastructure investment with a long lead-time. Investors had begun to lose hope, and started discounting further-out projects such as Woodside’s Browse and Sunrise down to zero. Additional train expectations at the likes of Pluto, GLNG and PNG LNG have also been taken more recently with a pinch of salt.
The biggest impediment has been a lack of willing buyers. Perhaps the time has come.
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18 April 2011
Bishop was quoted as saying:
“We’re not going to be able to crowd them out with aid, but what we could do is join with them and be part… of their push into places like PNG.”
The argument goes something like this:
China delivers aid in the region in an apparently haphazard way that undermines internationally coordinated responses to issues such as countering corruption, efforts to strengthen governance and develop local ‘capacity’.
In fact, China ignores internationally normative ‘governance’ questions such as corruption and human rights, delivering aid and malleable ‘soft loans’ in an effort to advance narrowly defined national interests.
The suggestion that Australia, as the most significant aid provider in the region, should engage the Chinese in established international norms of coordinated aid delivery is consistent with ideals about Australia being a good international and regional citizen.
But the proposal flies in the face of established conventions and practices of Australian foreign policy.
The Australian’s guardian of this ‘realist’ foreign policy mainstream, Greg Sheridan, for example, is appalled by Bishop’s statement. He has tarred Bishop’s ideas as a ‘nonsensical thought-bubble’ and laid responsibility for the ideas with the Lowy Institute which, in his view, has no place in the cut and thrust of international politics.
For Sheridan, Australia’s only role as a middle-power in the Pacific is to remain firmly and loyally wedded to the American imperium.
While I doubt we’ll hear Bishop repeat the Lowy Institute proposal, her contribution should be welcomed for opening a broader discussion about Australia’s role in the rapidly-changing region.
Bishop is right to suggest that Australian foreign policy should engage much more actively with the region and avoid the tragic distraction of US wars far away. Where Bishop, the Lowy Institute and the realist mainstream might be wrong, is in understanding what is already going on in PNG.
In particular, it neglects the deep unrest at the ‘grasruts’.
One source of grassroots unrest is the $US16.5 billion Exxon-Mobil led consortium bringing gas from the Southern Highlands to a processing plant in Port Moresby and on to energy-hungry markets in Asia. This is the big development story in PNG today.
The 30-year project is expected to generate $US5.6 billion in royalties, taxes and dividends lifting PNG from its lowly ranking at 148 (out of 182) nations in the UN Human Development Index. The hope is that it will bring quality schools, healthcare and infrastructure to people across the country.
The first indications are not good. Landowner groups are demanding transparency from the agency which distributes their royalties apparently at whim, and provides no accounts or explanations of hefty ‘management fees’.
At the local level, royalty disputes have already led to acrimonious community divisions with at least 15 reported shooting deaths at either end of the pipeline, and construction sabotage and stoppages at the well.
The consortium appears to have washed its hands of the royalty distribution issue, preferring instead to talk up its distribution of 14,000 anti-malarial mosquito nets to pipeline communities in glossy ‘social and environmental impact statements’.
Meanwhile, the Chinese-run Ramu Nickel mine has led to even deeper resentments. There is deep community unrest over the damage being done to the Ramu river catchment and the authoritarian and contemptuous response at the mine to local concerns. The regional capital Madang has seen big anti-Chinese riots, as have parts of the highlands where a new wave of small-scale Chinese entrepreneurs are bitterly resented.
As the US-China dynamic becomes more complicated and control of regional resources more crucial, ‘middle power’ Australia needs to make some principled, long-term choices. One of those would be recognising that Australia’s long-term national interest lies with supporting local communities and emergent civil society organisations which have the resilience to weather the approaching storms and perhaps call their governments to account.
This will mean stepping out of the shadow of whichever great power we habitually attach ourselves to, and having a truly independent foreign policy. I don’t think that’s a ‘thought-bubble’ Bishop, Sheridan or the Foreign Minister Rudd can even begin to imagine.