The largest liquefied natural gas (LNG) sales agreement ever struck in Australia has been praised as a winner for workers and shareholders that will generate $7 billion a year.
Origin Energy on Thursday approved the first phase of its $20 billion two-train LNG joint venture project with ConocoPhillips in Queensland. Phase one will involve spending $US14 billion ($A12.75 billion) to complete the first LNG train that will be able to carry 4.5 million tonnes a year.
The project involves development of coal seam gas fields in south central Queensland over 30 years and a 450km transmission pipeline from the fields to Curtis Island near Gladstone, where an LNG processing facility will be built.
The sales agreement with foundation customer state-owned China Petrochemical Corporation (Sinopec) is a $90 billion deal to provide 4.3 million tonnes a year for 20 years.
There are now three giant coal seam gas projects underway around Gladstone – Origin’s is the largest – with BG Group and Santos developing the other two, and $50 billion being spent in total.
Natural gas demand is set to more than double by 2020 with Australia one of the world’s biggest exporters. More than two-thirds of the $US14 billion phase one spend would be spent in Australia, Origin chief executive Grant King told reporters.
There are about 1,600 workers currently engaged on the project, with about 6,000 jobs forecast during a four-year construction period and 1,000 ongoing jobs, Mr King said.
“What’s transpired is an industry with potential far greater than any of us envisaged 10 years ago or even five years ago,” he said.
Queensland Premier Anna Bligh praised the project and said the new jobs would mean an economic and population rebirth of southwest regional towns.
The coal seam gas industry would also generate about $850 million in royalties once it matured, although Origin would not start exporting until 2015, Queensland Treasurer Andrew Fraser said.
Energy analyst David Leitch, from UBS, said the project would also be good news for Australians generally if the Commonwealth petroleum resources rent tax legislation was passed, which affects oil and gas.
“There will be revenue coming into Australia of about $US7 billion a year, so we think it’s pretty good news for Queensland and Australia,” he told AAP.
“From Origin’s shareholders’ perspective, we see it as significantly enhancing the overall return on capital.”
Ratings agencies Moody’s and Standard and Poor’s released statements raising concerns about funding and Moody’s changing its rating outlook to negative from stable.
“The negative outlook primarily reflects uncertainty in relation to the project’s funding structure, which has yet to be finalised,” said Spencer Ng, a Moody’s analyst.
Last month, a $900 million cost blowout and delay to Woodside Petroleum’s offshore Pluto project prompted ratings agency Fitch to warn there could be more delays in the LNG sector due to the large number of projects.
UBS analyst Mr Leitch said he wasn’t concerned about financing, saying the project was good enough to attract money.
Mr King also said he was confident he could attract enough workers, despite labour shortages hitting the mining industry, saying some Queenslanders that had gone to Western Australia could come back.
“We have had over 2,000 organisations register interest working in the project. Queensland has quite a deep industrial capability,” he said.
Origin shares had a worse day than the overall market’s 1.6 per cent drop – losing 32 cents, or 2.12 per cent, to close at $14.77.
AAP
