(EnergyAsia, November 19 2012, Monday) — Houston, US-based InterOil Corporation (IOC) has achieved a major breakthrough in its difficult attempt to build a liquefied natural gas (LNG) project in Papua New Guinea (PNG) that at one point had looked to be in danger of being cancelled.

After months of intense negotiations, the company was able to release a good-news statement that PNG’s Prime Minister Peter O’Neill had announced the country’s National Executive Council (NEC) had approved InterOil’s LNG project in the Gulf Province.

“The decision clears the way to proceed with our plans for an LNG plant in the Gulf Province with initial output of a minimum of 3.8 million tonnes per annum,” it said.

“As the Prime Minister has announced, the decision also approves the acquisition by the state of an additional 27.5% equity interest in the Elk/Antelope gas fields, over and above the 22.5% interest to which it is entitled under the Oil & Gas Act, on terms to be negotiated with InterOil.”

As a condition for giving its approval, the NEC has insisted that the project developers will appoint an “internationally recognised” to operate the facilities. InterOil said it is ready to participate in these discussions, which it expects will commence shortly.

The NYSE-listed company said the PNG government intends to take its gas entitlement from the project to provide fuel for domestic power generation and feedstock for industries to help stimulate economic growth.

According to InterOil, the Prime Minister’s announcement also mentioned that the NEC has approved the establishment of a state negotiating team to discuss and agree to the necessary amendments to the 2009 project agreement between the government and Liquid Niugini Gas Limited. The talks will focus on firming up the NEC decision and the market terms on which the government will acquire the additional equity interest.

The PNG Cabinet has also approved the establishment of the Ministerial Gas Committee comprising key economic ministers to fast track commercialisation of the county’s second LNG project.

With the government’s position now clarified, InterOil said it expects to conclude an agreement for a sale of an interest in the Elk and Antelope resource in Petroleum Retention Licence 15 and the first 3.8 million tonnes per annum LNG train to a partner or partners in the coming weeks.

It said potential investors include major oil companies, national oil companies, and Asian utilities.

The proposed US$6 billion project had encountered major political opposition amid reports earlier this year that it had been or was about to be cancelled by PNG’s Department of Petroleum and Energy (DPE).

Despite denials by Energy Minister William Duma, Interoil said it had learnt the DPE intended to cancel the 2009 agreement establishing the project between its joint venture firm, Liquid Niugini Gas Limited, and the PNG government. Pacific LNG is InterOil’s partner in the joint venture.

Located beside an oil refinery owned and operated by Interoil, the proposed complex is designed to export LNG to Asia when it starts up in 2015.