Origin inks gas sale deal with rival
Origin Energy is so confident of its coal seam gas resource in Queensland that it has sold 365 petajoules of gas to the two-train, $US16 billion ($15.5 billion) Gladstone Liquified Natural Gas (LNG) project operated by rival Santos, which is running short of gas supplies.
Origin managing director Grant King, who spoke this morning at the Macquarie Australia conference in Sydney, said the 10-year deal, starting in 2015, would deliver significant value, ‘‘opening an export channel to market for our legacy fuel reserves and allowing a more rapid monetisation of the resource in line with international oil-linked pricing’’.
The deal comes ahead of a final investment decision, expected within weeks, to approve a second LNG train at Australia Pacific LNG, also in Gladstone, lifting the total project cost too $US20 billion. APLNG has already contracted to sell 8.6 mtpa to overseas customers Kansai Electric and Sinopec.
Origin and partner Conoco each own 37.5 per cent of APLNG after selling an additional 10 per cent stake in January to Sinopec, for $US1.1 billion, lifting its stake to 25 per cent, conditional on foreign investment approval and FID on a second train.
CLSA analyst Mark Samter said the GLNG deal confirmed fears that Santos was short of gas but was ‘‘a great deal for Origin’’, which should consider further selling down its stake in APLNG.
‘‘All the value in these projects is upstream,’’ Mr Samter said. ‘‘Origin, through APLNG, is taking an awful lot of downstream risk for what is basically a utilities business.’’
Mr Samter said there would be no lack of demand for Origin’s coal seam gas as rival BG Group, which operates the rival Queensland Curtis LNG project, was ‘‘going to be in a very similar position or worse position than GLNG’’.
Origin reported good flow rates in latest quarterly update, and produced 30.9 PJe of gas in the three months to March 31, and 135 PJe in the year to June 30, 2011. The company said it had access to more than 2,500 PJe of contract rights and uncontracted reserves.
An Origin spokeswoman said the GLNG deal would be supplied from Origin’s east coast portfolio - including from the Cooper Basin, or contract gas from other suppliers, not just from its coal seam gas fields in Queensland - but confirmed APLNG had sufficient reserves.
APLNG was getting ‘‘really good deliverability for its project’’, she said. ‘‘Our (CSG) wells at Talinga are delivering around 50 per cent more than we initially anticipated.’’
Mr Samter questioned why GLNG was sourcing its extra gas from Origin and not from its own fields in the Cooper Basin, where there is potential for extra resources from infill drilling and, potentially, shale gas.
Santos chief executive David Knox said the agreement with Origin was the most efficient gas supply plan for GLNG.
“The gas supply portfolio of GLNG coal seam gas, Santos portfolio gas, third party supply and underground storage, combined with GLNG’s quality LNG off-take contracts, delivers significant value to Santos.
“Today’s agreement adds to the previously announced supply of 140 terajoules per day of Santos portfolio gas to GLNG over a 15 year period.”
Origin also announced it will purchase the power supplied by the Snowtown II wind farm in South Australia, which is being built by TrustPower.Snowtown II will consist of 90 wind turbines when it begins operating in 2014, with capacity of 270 megawatts.
Origin shares rose 19 cents to $13.70 this morning while Santos fell 6 cents to $13.97.