Origin Energy (ASX: ORG) has, as foreshadowed by its signing a second customer late last month, approved the second LNG production train for its Australia Pacific liquefied natural gas project on Curtis Island off Gladstone, Queensland.
The two-train LNG project will be capable of producing a total of 9 million tonnes of LNG per annum (MMtpa) and is now expected to cost about A$23 billion up from , making it one of Australia’s largest LNG projects.
The first 4.5MMmtpa train is expected to start producing LNG in 2015 with the second train expected to follow a year later.
Approval of the second train also makes the increase of Chinese oil major Sinopec’s stake in the project to 25% from 15% unconditional. Origin will retain 37.5% in APLNG while ConocoPhillips (NYSE: COP) holds the remaining 37.5%.
APLNG gas sales and background
Japanese utility Kansai Electric Power Company had last month signed a Sale and Purchase Agreement for supply of about 1MMtpa of LNG for 20 years, firming up a heads of agreement reached in November last year.
This adds to Sinopec’s commitment in January to buying 7.6MMtpa of LNG from APLNG, up from its previous 4.3MMtpa, bringing the total contracted gas to 8.6MMtpa.
APLNG takes coal seam gas from Origin's fields in Queensland as feedstock for the production of LNG. The first LNG train was approved in July 2011.
The project currently holds proved and probable reserves of 12,810 petajoules of gas as well as proved, probable and probable reserves of 16,022 petajoules of gas.
Further upside to feed further trains or extend the life of the project could exist in the contingent resources of up to 10,614 petajoules of gas.
Origin noted that with the addition of the second train, a US$35 (A$34) per barrel oil price over the project’s life would cover all estimated project costs and project finance debt service obligations while a US$50 per barrel price would allow it to recover its weighted average cost of capital on its estimated cash injection into the project.
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