Oxygen therapy is essential in all wards, emergency departments and operating theatres of hospitals at all levels, and oxygen is life-saving. In Papua New Guinea (PNG), an effective oxygen system that improved the detection and treatment of hypoxaemia in provincial and district hospitals reduced death rates from pneumonia in children by as much as 35%. The methods for providing oxygen in PNG are reviewed. A busy provincial hospital will use on average about 38,000 l of oxygen each day. Over 2 years the cost of this amount of oxygen being provided by cylinders (at least K555,000) or an oxygen generator (about K1 million) is significantly more than the cost of setting up and maintaining a comprehensive system of bedside oxygen concentrators (K223,000). A district hospital will use 17,000 l per day. The full costs of this over 2 years are K33,000 if supplied by bedside concentrators, or K333,000 plus transport costs if the oxygen source is cylinders. In provincial and district hospitals bedside oxygen concentrators will be the most cost-effective, simple and reliable sources of oxygen. In large hospitals where there are existing oxygen pipelines, or in newly designed hospitals, an oxygen generator will be effective but currently much more expensive than bedside concentrators that provide the same volume of oxygen generation. There are options for oxygen concentrator use in hospitals and health centres that do not have reliable power. These include battery storage of power or solar power. While these considerably add to the establishment cost when changing from cylinders to concentrators, a battery-powered system should repay its capital costs in less than one year, though this has not yet been proven in the field. Bedside oxygen concentrators are currently the 'best-buy' in supplying oxygen in most hospitals in PNG, where cylinder oxygen is the largest single item in their drug budget. Oxygen concentrators should not be seen as an expensive intervention that has to rely on donor support, but as a cost-saving intervention for all hospitals.