* Companies approve second train for LNG project
* Approval allows Sinopec to lift ownership to 25 pct from
15 pct
* Origin says project cost $23.6 bln, cites cost challenges
* Origin to offer further 7.5 percent of equity
By Rebekah Kebede
PERTH, July 4 (Reuters) – ConocoPhillips and Origin
Energy approved on Wednesday a second train at the A$23
billion ($23.6 billion) Australia Pacific LNG project, despite
concerns over rising costs and gas shortages in the country’s
coal seam gas sector.
The approval also paves the way for partner Sinopec to
increase its ownership to 25 percent from 15 percent, the
companies said.
The venture is one of three coal seam gas to liquefied
natural gas projects worth over $50 billion currently underway
in Queensland state and the approval of a second train comes as
other projects have faced hurdles, including a spike in costs.
Origin Energy said that there had been no significant change
in costs estimated for APLNG, although warned it might not
continue to be immune from future cost pressures.
“We’ve got the better part of three years to go and a
substantial part amount of the actual expenditure ahead of us
and it would be simply wrong to suggest that we can guarantee
today that we will not experience our share of those
challenges,” Origin’s managing director Grant King told
reporters on a conference call.
Ryan Lance, Conoco’s chairman and chief executive, said the
second train was the final step in the approval process.
“From this point we are committed to the development and
construction of all infrastructure and facilities to ensure the
first delivery of LNG in 2015,” Lance added in a statement,
noting the second train will begin exporting LNG a year later.
An LNG train is a plant that chills gas to liquid form for
shipping and APLNG made a final investment decision on the
first train last year, delaying a decision on the second train.
Origin said its share of the project costs would be funded by
selling off a further 7.5 percent of equity in APLNG. In
January, Sinopec paid $1.1 billion to raise its stake by 10
percent.
Origin and ConocoPhillips each hold 37.5 percent equity in
APLNG.
COST PRESSURES
Coal seam gas operators are aiming to drill tens of
thousands of wells targeting methane held in coal beds, which is
then converted to LNG.
But there have been concerns that some projects are
struggling to find enough gas that has already been pre-sold to
customers, pushing up already rising costs being driven by
factors as labour shortages.
Origin Energy said that there had been no significant change
in the $20 billion project costs estimated for APLNG in 2011
when the joint venture approved the first train other than
changes due to foreign exchange rates.
In December 2011, when the joint venture was budgeting costs
for the project, $20 billion converted to A$23 billion based on
forward currency contracts, Origin said.
Two other coal seam gas project operators, Santos
and BG Group, recently announced cost increases. Santos
last week increased its cost estimate for its Gladstone LNG
project by 15 percent and BG Group increased the cost estimate
for its Queensland Curtis Island project by 36 percent earlier
this year.
NO EXPANSION?
According to some analysts, Origin is better positioned than
the other two coal seam gas projects underway, with richer gas
fields that do not require as much drilling, which will likely
keep a tighter lid on costs.
The fact that other coal seam gas operators are searching
for gas could provide an alternative outlet for expanding the
plant from the 9 million tonne per year production provided by
two trains.
“We actually don’t need another train to have the capacity
to commercialize more resources,” Origin’s executive director of
finance and strategy, Karen Moses, told reporters.
APLNG is currently permitted to have an additional two
trains to produce a total of 18 million tonnes per year and
Origin has already sold some gas to both BG and Santos.
Most of the plant’s production will be sold to Sinopec
through a 20-year deal for 7.6 million tonnes per year of LNG
purchases, starting in 2016.
The agreement, which Origin said was the largest Australian
LNG supply agreement to date, will help supply China’s rapidly
growing demand for LNG as it switches to cleaner burning fuels.
APLNG also has a supply agreement with Japan’s Kansai
Electric for 1 million tonnes of LNG per year from 2016.
Origin shares rose 4.5 percent to A$12.88 by early afternoon
trading.
