boilingspot: Insight: Papua New Guinea mountain disaster questions Exxon

A deadly landslide in the mountains of Papua New Guinea, near where U.S. oil major Exxon Mobil is building a $15.7 billion gas project, is raising fresh questions about the global energy industry's scramble for ever harder-to-reach resources

By Rebekah Kebede | Reuters | Mar 6, 2012

The landslide tore through a quarry used by Exxon in January, killing at least 25 people in the poor South Pacific country, but it has stirred little international publicity, even though an expert report had questioned the safety of the excavations.

The controversy also raises some familiar issues aired by critics of "big oil" in previous disasters: a pressure to deliver results, contractors found to have cut corners and remote operations that limit government oversight.

Exxon, which was using the quarry to produce rock and gravel needed to develop the upstream end of its gas-export project, has said it is unclear what caused the disaster in Papua New Guinea's steep, heavily wooded Southern Highlands.

The Papua New Guinea government has denied the quarry contributed to the landslide, but local villagers, environmental activists and an international landslide expert are unconvinced and want a thorough, independent investigation -- something that shows no sign of happening despite evidence that quarrying work was being rushed to meet tight construction deadlines.

Less than 12 months before the landslide, an independent consultant, Italian firm D'Appolonia, found Exxon's quarrying operations did not meet the environmental and social standards demanded by the company's creditors and it concluded that workers had been under pressure to meet deadlines.

"The overall impression of (the consultant) is that incidents and situations have developed because the project has circumvented correct procedures in the interest of schedule...," D'Appolonia said in a report dated March last year and commissioned by the project's main creditors.

"The project will need to make sure that schedule does not dominate decisions," it added.

The report, compiled by a firm that also counts Italian energy group Eni and the European Commission among its clients, was sitting in a corner of Exxon's website when, just before dawn on January 24, a mountainside collapsed above one of several quarries Exxon was running in and around the site.

A villager recalled hearing a loud crack ring out across the valley as the slope gave way, collapsing through the Tumbi quarry and burying homes that had been perched beneath it. The disaster left a trail of debris stretching more than 500 meters (500 yards) and also carved through a road into the project.

All of the bodies of those killed remain buried in the debris, according to the provincial governor.

"I have never seen this type of (landslide) before in my life in that area," the villager, Hipson Puma, 39, said by telephone.

Exxon said it had closed the Tumbi quarry in August last year, five months before the landslide, because it no longer needed to use it and had taken heed of the D'Appolonia report, making the site secure. It also notes that landslides are common in that part of the Southern Highlands.

"This was a significant landslide, and we, like many others, want to know how it occurred so we can understand the environment in which we'll be operating, given we'll be in this region for many years to come," spokeswoman Rebecca Arnold said, when asked if Exxon would support an independent inquiry.

Exxon operates the project and owns 33.2 percent of it. Australian companies Oil Search and Santos also hold significant stakes, with 29 percent and 13.5 percent respectively, while the state-run National Petroleum Company of Papua New Guinea owns 16.8 percent. Japan's Nippon Oil Exploration has 4.7 percent and local landowner group Mineral Resources Development Company 2.8 percent.

D'Appolonia also said, in a later report, that conditions at the Tumbi quarry had improved by August.

But some locals say Exxon had expanded the quarry too rapidly -- a charge it denies -- and they are using the March report to support their claim that the oil company was to blame.

The Exxon spokeswoman said she did not have information on how much the quarry had been expanded. The company had planned to relocate 14 households to make way for the works at the site, which had been used for smaller excavations for many years before it reopened for the project in 2010. A map of the original plans for the site show it intended to double its size in terms of area over 24 months. It used the quarry for 15 months.

NO SIGN OF INDEPENDENT INQUIRY

David Petley, director of Durham University's International Landslide Centre, in Britain, said poorly managed quarries and mines often contributed to large landslides and that a thorough investigation could help prevent future disasters.

"My working hypothesis, which needs to be tested, is that the quarry played a role in increasing the susceptibility of the slope to failure. Rainfall was then the trigger for the final collapse," said Petley, a geography professor who has offered to help with any investigation.

"The fact that problems with (the quarry's) operation had been identified by independent consultants strengthens that possibility, but it remains far from certain without a proper investigation," Petley added.

The Papua New Guinea government, a part-owner of the development, the nation's largest ever, has given no indication that it will conduct an independent inquiry into the disaster.

The Papua New Guinea National Disaster Centre conducted what it calls an "initial report," concluding that the trigger for the landslide was heavy rainfall. It does not mention whether or not the quarry had been ruled out or had even been considered as a contributing factor to the landslide.

The centre, which is responsible for recommending a more detailed investigation, says a landslide of that magnitude had not occurred in Papua New Guinea since 1998. But the centre's chief, Martin Mose, said there were no plans for an inquiry.

He gave no clear reason.

"There is still not discussion of a detailed investigation," Mose said last month by phone from Port Moresby, the capital.

"We haven't sanctioned anything yet. An investigation of that magnitude can be taken later on," he said, without giving a timeframe. He added that it was up to the government, not independent experts, to carry out any full investigation.

TOO MUCH OF A HURRY?

The upstream gas field is being carved out of remote highlands, where communities live in thatched huts and tend small, terraced farms. It will feed gas by pipe to a liquefied natural gas (LNG) plant, which is scheduled to start up in 2014 and is estimated to boost the national economy by a quarter.

Endowed with resources, Papua New Guinea hopes the project will revive its patchy investment reputation: its Bougainville copper mine, one of the world's largest, has been dormant for more than 20 years because of local unrest, and in the past 10 years foreign investors have pulled out of its Ok Tedi copper mine after years of environmental complaints.

Some villagers, a local landowner and community groups reached by phone say they suspect both Exxon and the government are in too much of a hurry to bring the project onstream. Even after the disaster, some complained that the recovery effort gave too much priority to re-opening the project's access road.

"We are talking about a quarry mountain collapsing," said Joseph Warai, the director of Community Based Health Services, who has been working in the area for years and believes it is "obvious" the landslide was caused by the excavations.

"Our government is also an investor, so who really represents the people in especially this type of disaster...?" Warai said. "You're looking at the state being a player and we seem to have no neutral regulator."

A call to the office of the Papua New Guinea works minister, who is responsible for disaster recovery, was not returned.

Exxon denied it had ever put timetables ahead of safety.

"(Exxon's local unit) Esso Highlands absolutely considers safety and responsible operations more important than schedule commitments, and our actions have been consistent with those priorities," Arnold, the firm's spokeswoman, said in an email.

In noting some of the shortcomings of the quarrying operation, the D'Appolonia report also ruled out any suggestion that Exxon or its quarry contractors, Clough Curtain Brothers Joint Venture and McConnell Dowell Consolidated Contractors joint venture, had deliberately compromised safety.

It found workers on the ground were dedicated and gave a positive impression, despite citing several earlier mishaps across the project, including a mudslide in which no one was hurt.

But, overall, the consultant highlighted the pressure on workers to meet schedules -- a pressure that industry analysts say is only increasing as Exxon nears the 2014 target date for starting LNG deliveries. Before the landslide, some analysts had already expected the project could slip back until 2015.

"Any delay, no matter what the reason ... means more money. Anytime a project's delayed, it's going to increase the capital expenditure for the project. That would affect the economics of the project," said Natalie Bravo, an analyst with PFC Energy.

A delay in PNG LNG would also force Exxon to scramble to find enough gas to supply its customers, who have already signed long-term contracts with the company starting in 2014.

OTHER CONCERNS

The project is one of the most complex LNG developments ever built, experts say. It will pipe gas over hundreds of km (miles) of mountainous terrain to the LNG plant near Port Moresby, with the project partners building new roads as they go.

"The challenges were huge. I wouldn't be surprised if there were cost and time overruns," said Tony Regan, an LNG analyst with Tri Zen International in Singapore.

The Exxon project runs several quarries in and around its Southern Highlands gas field, and the Tumbi operation was not the only one that drew criticism from D'Appolonia.

The consultant also raised concerns about safety at the neighboring Tameya quarry, about half a kilometer away but not damaged by the landslide. The Tameya quarry was flagged as unsafe in March 2011, and deemed a possible threat to human life.

By August, D'Appolonia had determined that the "conditions" at Tameya had not changed, though a project creditor, ANZ bank, says that an unpublished report from a November site visit has since given it a clean bill of health.

D'Appolonia's lead consultant declined to comment on the reports. It was hired by lenders to ensure the project met the environmental and social requirement of the loan agreements.

SIMMERING DISCONTENT

Impartial public oversight of operations in such a remote region can be difficult.

Local tribal chiefs are likely to have more power than the federal government, and basic logistics such as transport and accommodation can be difficult. During the National Disaster Centre's initial report into the disaster, Exxon provided logistics, transport and accommodation for the government team.

With no full independent investigation on the horizon, there are concerns that landowners could seek out their own justice.

The project has been plagued from its inception by disgruntled landowners who feel they are not being dealt their fair share of the windfalls from the project. Early work was delayed in 2009 due to landowner concerns.

Anderson Agiru, the Southern Highlands provincial governor, says he believes the landslide was a natural disaster but that an investigation is needed to clear the air.

"We are talking about a large number of lives being lost here... it's very sensitive and it's in their interests to desensitize this problem because it has the potential to become explosive, especially in light of the huge investments in the PNG LNG (project) in the area," he said by telephone.

"The pace at which the office of emergency and disaster, the government is moving in relation to this is too slow, far too slow. They need to act with some speed," Agiru said.