Papua New Guinea is unlikely to impose tougher conditions on an LNG expansion part-owned by Oil Search given sovereign risk concerns if it suddenly switched investment terms, according to research firm MST Marquee.

A Credit Suisse note by analyst Saul Kavonic this week said PNG Petroleum Minister Kerenga Kua buckled to industry pressure by largely keeping the existing $US13bn ($19.08) Papua LNG contract in place.

But MST Marquee rubbished the idea that PNG had lost out in the negotiation and said the state could hardly rip up the existing deal already agreed with the previous government in April.

“PNG would be entirely uninvestable for serious companies if the government tore up a binding contract at any stage, let alone a few months after it was signed,” MST Marquee analyst Mark Samter said.

“The reality is that LNG markets are pretty dire at the moment and the economics of expansion are not what the foundation project offered. Everyone always wants more, but if PNG wants anything that the expansion will bring (jobs, value in the equity stake, taxes and royalties) then those things only happen if the project proceeds.”

The Total-led LNG expansion deal was originally struck in April with former prime minister Peter O’Neill but renegotiated after new leader James Marape called for a better economic return for the state.

Investors are now focused on any read through from the Papua deal being concluded for the second part of the expansion, led by Exxon and Oil Search and called P’nyang, and whether the government will take a harsher approach.

Credit Suisse said it may take on tougher terms leading to delays for the P’nyang pact to be sealed.

But Mr Samter said PNG would also surely recognise the importance of P’nyang to concluding the overall expansion without any hitches.

“Clearly there is a risk the government is more punitive on the P’nyang agreement, but with the economics of that asset slimmer still than at Papua, and the intertwined nature of these projects, they will be cutting off their noses to spite their face if they do derail it,” Mr Samter said.

“Indeed, you could argue that it would be entirely illogical to have allowed the Papua agreement to stand only to block P’nyang, as the outcome will be the same — no LNG expansion.”

Total made some concessions on Papua LNG as part of government negotiations including a national content plan for the gas export project and third-party access to petroleum pipelines.

The state will also be able to buy a stake in the pipelines after repaying loans and costs on the development, along with the ¬potential purchase of LNG carriers between the company and the -nation’s Kumul Petroleum arm.