Origin's Expansion Plans on Track

The door remains open for the development of a third stage expansion of the Asia Pacific export gas project launched by Origin Energy and ConocoPhillips, as the venture moves closer to a final investment decision on the second phase expansion.

The partners announced yesterday that binding agreements had been reached with Sinopec for the sale of an additional 3.3 million tonnes of gas annually, coupled with the sale of a further 10 per cent equity in the project to the Chinese company for $1.1 billion, raising its total stake to 25 per cent.

Once government approvals are in place, probably in the next few months, a final decision is expected to be made to proceed with the second phase. This will boost exports to 9 million tonnes annually.

Despite the caution about the environmental impact of coal seam gas projects, coupled with wariness over the blowout in construction costs for some large projects, Origin remained upbeat.

''China's got a very clear plan to double the role of gas from 4 per cent to around 8 per cent'' of its total energy supply, Origin's managing director, Grant King, said.

''Any number that doubles in China is huge. There will be robust demand for gas.''

The sale of additional equity to Sinopec will cut Origin Energy and ConocoPhillips's stake to 37.5 per cent each.

''We're now at about the right point for the size of the investment and the size of [Origin],'' Mr King said.

The door remains open to a further two phases of expansion of the project, which already have approvals in place.

A third phase expansion was ''an option'', Mr King said. ''Right now we really are focused on delivering the first two.''

Sixty per cent of the project's costs have fixed price contracts, with varying controls in place over the other contracts needed for the project.

The first phase, for the export of 4.5 million tonnes of liquefied natural gas annually, will cost $12 billion, rising to $20 billion with the second phase expansion, also of 4.5 million tonnes.

Sinopec is committed to take 7.6 million tonnes of gas in total a year, with Japanese utility Kansai Electric Power Co to take 1 million tonnes annually. The remaining 0.4 million tonnes a year is to be sold into the spot export gas market.

The final price paid by Sinopec for its equity does not include its share of the cost of the investment in the project carried out to date, which is yet to be finalised.

Source: The Age