AUSTRALIA Pacific LNG project operator Origin Energy predicts the 2015-2016 financial year will be a transitional period for the company.

Production of liquefied natural gas from the $24.7 billion project is due in mid-2015, following a seven-year development phase.

Shareholders of Origin, which holds a 37.5 per cent stake in the project, would be the direct beneficiaries as a result of projected increased dividends, the company said.

Origin said the project would deliver a “step change” in its earnings and cash flow from the 2016 financial year, with the impact to be felt in the results of 2017.

In an address to shareholders at the company’s annual general meeting in Sydney in October, Origin managing director Grant King said distributable cash flow of around US$1 billion from the two LNG trains would be generated every year.

“This step change in cash flow will allow Origin to increase shareholder distributions, maintain an investment grade credit rating and reinvest cash in growing businesses,” he said.

The company said an increase in its LNG production, underpinned by APLNG, would result in expanding gas margins and an improved supply/demand balance in electricity markets.

APLNG has the largest proved and probable (2P) coal seam gas reserves position in Australia with 14,091 petajoules. Origin’s 2P reserves position, including Origin’s share of APLNG, stands at 6,473 petajoules.

Project on track

Origin and its APLNG partners, ConocoPhillips (37.5%) and downstream operator Sinopec (25%) remain on track to produce first gas in mid-2015 and within budget.

Spending on the Australia Pacific LNG project, which has the capacity to produce 9 million tonnes per annum, had reached $21 billion by 30 June.

As of the end of September, the upstream side of the project was 85 per cent complete.

“In the upstream project the main transmission pipeline and a number of gas processing facilities are now complete and commissioning has commenced,” Mr King told shareholders.

“Water treatment facilities at Condabri are now operational and importantly local farmers are receiving processed water to irrigate their land.

“Over 900 wells are drilled of which over 450 wells are already commissioned, with about 70 wells a month now being commissioned on an ongoing basis.”

Origin also indicated progress was being made with the downstream part of the project now 82% complete.

“All modules for Train 1 are set and all remaining Train 2 modules are expected to be set prior to the end of the 2014 calendar year,” Mr King said.

In conjunction, both LNG tanks had been hydrostatically tested, confirming structural and pressure integrity.

The two storage tanks, which have a capacity of 160,000 cubic metres and were designed to store the chilled LNG prior to being shipped, took a total of two months to test and complete.

The loading platform for the LNG jetty is complete and piping and cable installation are also progressing as is preparations for commissioning activities.

Following construction and commissioning in June, gas from Condabri Central train 1 is now being delivered into the domestic gas network together with gas from APLNG’s existing Spring Gully and Talinga facilities.

Condabri Central is the first of seven new gas processing facilities being constructed

Plans afoot to stockpile

Mr King indicated to shareholders that it may stockpile gas supplies to leverage off the anticipated price rise in coming years.

“The timing of commencement from other projects, particularly QCLNG, may affect Origin in a number of ways,” Mr King said.

Origin will be affected by the timing of QCLNG’s start-up as the company has a share of the projects production via a gas supply deal.

According to Mr King, APLNG, and therefore Origin, would benefit from its share of QCLNG production, but if production was delayed then the benefit would be diminished in the 2015 financial year.

“This delay may however result in additional ramp gas in the market at temporarily lower prices which Origin can buy for its energy markets business and benefit accordingly,” he said.

“In order to benefit from this opportunity Origin will reduce its call on production from its upstream business and bank contracted gas this year and call for that gas in the following years when it is more valuable.

The company isn’t expected to benefit from the strategic move straight away, with Mr King anticipating it would result in lower earnings from its export business this financial year, to be compounded by scheduled shutdowns and recent falls in oil prices.