AGL Reassesses Need for PNG Gas

Australian Gas Light Company has informed the PNG Gas Project Owners that it is unlikely to require PNG gas from 2006. Although the original agreement remains in place, we have been informed that, should conditions of other sales contracts be met, it is unlikely that AGL will take PNG gas in that timeframe. The AGL decision is disappointing, as it comes at a time when the Project is making material progress in signing customers and delivering all requirements in preparation for a decision to move to Front End Engineering and Design (FEED) very early in 2003. This decision will not change the present focus of the Project Group, in that it will continue to finalize the FEED program and budget for a decision at an early date in 2003.

The Project Group has been encouraged by the expanded market potential for PNG Gas in Northern Australia, since it became apparent that a major gas supply source from the Timor Sea was not viable. The Group is now in intense negotiations with a number of customers in Queensland, the Northern Territory and the southern States. These negotiations have reached an advanced stage and Sponsors are confident that more than sufficient customer demand for gas is present to underwrite the PNG Project and allow it to move to FEED, regardless of AGL's position. Marketing activities will increase in order to secure sufficient volumes for a FEED decision to be made as soon as possible.

As AGL acknowledged themselves today, the presence of PNG Gas in the Australian market is considered essential in ensuring competitively priced energy for eastern and northern Australia. Whilst intense competition from incumbent suppliers must be expected, especially in the southern markets, Project Sponsors believe that PNG Gas has a clear niche in northern and eastern Australia, especially as existing local large volume supplies of gas are now limited.

The Project continues to enjoy the full support of the PNG, Federal and State Governments.