Report No 3882-PNG PapuaNew Guinea:Issues and Options in the EnergySector Public Disclosure Authorized June 1982 Public Disclosure Authorized Public Disclosure Authorized Reportof the joint ULMP/Mfdd BankEnergy Sector Assessment Program Public Disclosure Authorized This document has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank. CURRENCY EQUIVALENTS Currency Unit = Kina (K) 1 Kina = 1.5 US Dollar (1981) 1 US dollar = K 0.67 4 1 Kina = 100 toea (t) FISCAL YEAR July 1 - June 30 through 1977 Jan. 1 - Dec. 31 beginning in 1978 ABBREVIATIONS BCL Bougainville Copper Ltd. BOE Barrels of Oil Equivalent DME Department of Minerals and Energy EDC Energy Development Corporation ELCOM Electricity Commission EPU Energy Planning Unit MMCF Million Cubic Feet MMCFD Million Cubic Feet per Day NEPC National Energy Planning Council PNG Papua New Guinea TCF Trillion Cubic Feet TOE Tons of Oil Equivalent CONVERSION FACTORS Density Net Cal. Value Tonne of Oil Equivalent (MJ/kg) (TOE) Light Distillates 0.68 44.5 1.063 Gasoline 0.73 44.1 1.053 Avtur/Kerosene 0.78 43.5 1.038 Distillate 0.83 42.6 1.018 Residual Fuel Oil 0.97 40.4 0.965 Methanol 0.796 19.95 0.476 Coat1(Australian) 27.64 0.660 This report is based on the findings of an energy sector assessment mission comprising Messrs. N. B. Prasad (mission leader), Donald King, John Tatom, David Newbery and Ms. Huda Kraske which visited Papua New Guinea in November 1981. Secretarial assistance was provided by Beatrice J. Moses. The report was discussed with the Government in June 1982. FOR OFFICIAL USE ONLY Report No. 3882-PNG PAPUA NEW GUINEA ISSUES AND OPTIONS IN THE ENERGY SECTOR June 1982 This is one of a series of reports of the Joint UNDP/WorldBank Energy Sector Assessment Program. Finance for this work has been provided, in part, by the UNDP Energy Account, and the work has been carried out by the World Bank. This report has a restricteddistribution. Its contents may not be disclosed without authorizationfrom the Government,the UNDP or the World Bank. TABLE OF CONTENTS Page No I- SUMMARY AND CONCLUSIONS.1...... ..-- 1 Energy Consumption ................................. 2 Energy Forecast 1985 and 1990. 3 Deiand . 3 Supply. 4 Investment. 6 Energy Resources. 7 Electricity. 7 Oil and Gas. 9 Coal. 9 Geotherraal.10 Renewables ............ 10 Institutional Issues .12 Priorities for Action .13 Framework for Technical Assistance .14 II. ENERGY CONSUMPTION AND PRICING .15 Consumption Overview .15 The 1980 Energy Balance .18 Sectoral Pattern of Energy Consumption .18 Transport .18 Industry .19 Bougainville Copper Ltd (BCL).20 Non-Mining Industries .21 Agricultural Processin .22 Others .23 Agriculture .23 Households .23 Energy Pricing, Taxes and Subsidies .24 Electricity .24 Petroleum Products.25 III.. ENERGY RESOURCES. ISSUES AND OPTIONS .............. 27 Resource Overview .27 Electricity .27 Oil and Gas .31 Coal .34 Geothermal .36 Renewables .36 Woodfuels ................................. 36 Ethanol .37 Biogas.39 Mini and Micro-Hydro .40 Solar Water Heating .40 Photo-voltaic Cells .41 Wind - Electric Generation .41 - ii - TABLE OF CONTENTS (cont'd) Page No. IV. ENERGY OUTLOOK 1981-1990........................... 42 Introduction ....................................... 42 Electricity . ....................................... 42 The Transport Sector ... 45 Industry ........................................... 45 Other Sectors (Agriculture, Households, etc) ....... 46 V. INSTITUTIONS AND POLICY PLANNING .51 Introduction........ ... 51 The Geological Survey Department.. 51 The Energy Planning Unit .... 52 ELCOM .... 53 Bureau of Water Resources ... 55 VI. ENERGY SECTOR INVESTENT.. 56 ANNEXES I: Energy Balances (1970 - 1990) . .59 II: The Electric Power Sector. 72 III: The Transport Sector .. 77 IV: PNG Hydroelectric Potential 83 V: Coal Occurrences in PNG . .84 VI: Organization Chart of the Department of Minerals and Energy . .85 VII: Consumption, Price and Import Cost Data 86 MAPS Twffl Issues and Options in the Energy Sector.... 16180 Ethanol Fuel Proposals.. CHAPTER I SUMMARY AND CONCLUSIONS 1.01 Papua New Guinea (PNG), with a population of 3 million, is relativelywell-endowed with energy resources - hydro potential conservativelyestimated at 14,000MW,gas reserves (from six discovery wells) already estimated at a possible 1.5 to 5.0 trillion cu. ft. with large sedimentarybasin areas yet to be explored, a large biomass potential from its forests and good solar energy potential. Despite this, PNG is currently dependent on petroleum product imports for meeting most of its commercial energy needs. Petroleum products account for nearly 55% of all energy consumptionand 87% of all commercial energy consumption. Because of rising world oil prices and increasingdemand for petroleum products, the share of export revenue spent on oil imports has risen from about 3% in 1972 to an estimated 24% in 1981. The 1981 oil imports are estimated at US$209 million (CIF) and amount to over 8% of GNP, 30% of gross domestic investment,and 80% of net external assistance. Without major efforts by the government,energy imports will soon impose an intolerableburden on the economy. 1.02 The country's energy options are severely constrained by the small size of total domestic energy demand, as well as the geographical fragmentationof the market, which leads to high investmentand operating costs per unit of output. Careful planning is thereforeessential to determine the appropriateoptions available for substitutingimported petroleum products by indigenous energy sources. In recognitionof this, the Government of PNG established in 1978 an Energy Planning Unit (EPU) in the Department of Minerals and Energy (DME) and by 1979 had issued a "White Paper" outlining its energy objectivesand policies. The "White Paper" emphasized the role of renewablesin alleviatingPNG's energy problems, particularlyethanol for the transport sector (which consumes 45% of all petroleum products), wood pyrolysis for the industrial sector and solar water heating and photovoltaicsfor households,and EPU began promoting projects in these areas, many of which, following further analysis and feasibility studies, have since been abandoned or reduced in scope. More conventionalareas of activity tended to be neglectedand energy planning did not advance significantly. However, in late 1980 the EPU began to place more emphasis on the electricity sub-sector,where 40% of petroleum products are used, where multiple options are available for substitutingthe oil used in power generation and where severe and widespread operationaland financial difficultieswere being experienced. More recently, some attention is being paid to the prospectiveuse of onshore and offshore reserves of natural gas, to hydro developmentand to energy conservation. Energy planning, including analysis, policy and monitoring for the entire energy sector, covering all producer and user sectors and sub-sectors,still has to mature and in this report the mission makes various recommendationsfor developing and strengtheningthe energy planning process. In addition to institutional strengtheningthere is an urgent need to implement further studies to evaluate more fully the different energy supply options, especially those - 2 - that will lead to firming up reserves of gas and oil, hydro and coal, so that decisions on which combination of energy sources is optimal to satisfy the medium-to-long-term demand of the various user groups can be taken in the near future. Energy Consumption 1.03 The energy sector of PNG has developed alongside the various enclaves which have characterized the country's industrial, economic and urban development. The major enclave is Bougainville Copper, Ltd. (BCL), which is on Bougainville Island separated from the country-s major demand centers, and which consumes nearly 62% of all electricity generated and 40% of all petroleum products, either for power generation or as distillates for various mining and ore processing operations, such as crushing, drying, etc. Another copper mining enclave, Ok Tedi on the main Island of New Guinea close to the Indonesian border, is being developed and will start production in the mid-eighties. The country's urban enclaves, which have a large expatriate population whose pattern of living is set by modern developed country standards, consume most of the remaining electricity and petroleum products in the household, commercial and private transport sectors. Over half of the country's 32,000 household consumers of electricity in 1980 were in the two towns of Port Moresby and Lae, whose combined population is only 180,000 (6% of the total population of 3 million). The consumption of commercial energy in the rural sector (87% of population) is a meager 1.1% of the country's total commercial energy consumption. 1.04 Total primary energy consumption in 1980 is estimated at 1,143,000 tonnes of oil equivalent (TOE), of which 709,000 TOE (62%) is commercial energy, mostly in the form of petroleum products, and 434,000 tonnes (38%) is non-commercial energy, mainly fuelwood. Per capita consumption of total energy at 2.8 barrels of oil equivalent (BOE) is approximately the same as in middle income developing countries in Asia (Indonesia 2.2 BOE, Thailand 2.7 BOE, Philippines 2.8 BOE) though the pattern of consumption, as noted above, is substantially different. 1.05 PNG has become increasingly dependent on commercial energy in the past decade. Commercial energy consumption (mainly