* Total estimates Papua LNG project at $10 billion
* Oil Search presses Total, Exxon (NYSE:XOM) to work together in PNG
* Location, low cost, high heating value make PNG's gas attractive
By Sonali Paul
MELBOURNE, April 19 (Reuters) - As liquefied natural gas (LNG) producers despair over a supply glut, two projects in Papua New Guinea are pressing on in a bid to sign off on new developments by 2018 to take advantage of a drop in construction costs and high quality gas.
France's Total SA TOTF.PA said this week it could build the country's second LNG plant for $10 billion, well below industry estimates, while Australia's Oil Search Ltd OSH.AX , which aims to expand in the region, said it expected new projects would have no trouble attacting lenders.
The push is in stark contrast to moves by rivals to shelve or delay LNG projects from Australia to Canada following an 80 percent slump in prices amid a flood of new supply just as demand has slowed.
Papua New Guinea has an advantage over Australian and U.S. gas as it is liquids rich, which creates extra revenue, it is closer to the world's biggest LNG markets in Japan, South Korea and China, and the gas has a higher heating value.
ExxonMobil Corp XOM.N is already weighing an expansion of its PNG LNG plant, which has been exporting for two years and is now producing at an annual rate of 8 million tonnes.
In its first public comments on cost, rival Total said a second plant, dubbed Papua LNG, could be built for $10 billion, at least 25 percent below analysts' estimates.
"We intend to build our own facilities. It will be a big project - about $10 billion and 10,000 people will have jobs," Chief Executive Patrick Pouyanné was quoted saying in two PNG newspapers on Monday following talks with PNG Prime Minister Peter O'Neill.
Oil Search, a partner in both Papua LNG and ExxonMobil's PNG LNG, said on Tuesday it expects to be able to fund its share of any new PNG developments.
"Based on soundings with financial institutions ... significant debt funding appears to be available for good quality projects such as these potential developments, despite the weaker oil price," it said in its quarterly report.
For a 7-million-tonnes-a-year project using gas from the Elk and Antelope fields, $10 billion would imply a cost of around $1,425 a tonne, compared with previous estimates from Papua LNG partner InterOil Corp IOC.N of a cost of around $2,000 to $2,100 a tonne.
"That is low," Neil Beveridge, a senior analyst at Bernstein Research, said in an email, adding: "We certainly believe that project could be one of the lowest cost in the region."
Oil Search declined to comment, deferring to Total as operator of the project. A Total spokesman told Reuters the cost estimate referred to the entire project, not just Total's share.
TIME TO INVEST
Pouyanné said last week now is the time to invest in new LNG plants, as projects will be able to negotiate cheaper construction costs with contractors as a raft of ongoing projects are completed over the next two years.
"Frankly for a major company like Total, the best strategy is to invest when prices are low because then the costs are low," he told reporters at a conference last week.
Oil Search wants the Papua LNG and PNG LNG projects to work together, to prevent wasting money the way LNG producers have on the east coast of Australia building three competing projects side by side.
UBS analyst Nik Burns estimates a stand-alone Papua LNG project would cost $15 billion and an expansion of PNG LNG would cost $9 billion, while tying them together could cut the combined costs by at least 10 percent.
"The size of the prize is potentially quite large," Burns said.