Thin profit margin for APLNG gas plant

TUMBLING oil prices and the pending influx of gas onto the world market have created doubt the $80 billion invested in the Curtis Island gas plants was money well spent.

But that's not the view of Origin Energy Chief Executive Officer David Baldwin whose company owns a 37.5% stake in APLNG, which is the last of the three plants to start exporting.

Mr Baldwin admits there are challenges ahead, but says the low oil price has pushed the company to re-think how it works; starting with the Surat and Bowen basin gas fields where innovation has already seen production costs drop by almost $2 million per well.

The company's first train is fed by 980 wells which 12 months ago cost $4.5 million each to build. Now that cost is down to $2.7 million per well and Origin is pushing to go as low as $2 million in the coming months, Mr Baldwin explained.

PHOTOS: Rare glimpse at APLNG's site

It's a significant saving given APLNG is expected to build 300 more wells this year. The materials to build each well comes in a kit with prefabricated parts, but with pressure to cut costs, engineers have begun questioning the way they're built.

"For example, the pipe coming from the well which joins the main gas pipe comes curved," Mr Baldwin said.

"We've asked why? If the whole well is turned, then it can be a straight pipe which costs less money to produce."

Mr Baldwin said it was that type of innovation that would help make APLNG profitable in the long term. The cost cutting was essential because APLNG based its original business plan off an average oil price of US$65 a barrel.

As of Thursday afternoon, oil is at US$36 a barrel and isn't expected to increase dramatically over the next 12 months.

At $40 a barrel the profit margin for APLNG is thin; it needs at least $35 per barrel to cover production costs and pay down the interest of its debt.

There are still about 600 workers on the APLNG site constructing the plant's second train which will be finished before the end of the year.

But bringing the second train online won't change the venture's business plan because APLNG has already signed a 20-year contract to export 4.3 million tonnes of gas each year and says it has no plans to increase that volume, or the capacity of the plant.

Already the on-shore gas industry is a major earner for Queensland's economy and last financial year represented 3%, or $10.6 billion, of the state's total gross product.

Follow this reporter on Twitter @helenspelitis

Did you know?

APLNG is a joint venture between Origin (37.5%), Concophillips (37.5%) and Sinopec (25%)

The plant exported its first shipment aboard the Methane Spirit in January. The ship can carry 165,000cu m of liquid gas.

Topics:  aplng curtis island gladstone lng

Tenants flock to Gladstone as vacancy rates drop

NEW FIGURES reveal tenants should lock in a long-term lease now.

He gave his teen lover 'a joint' before bed

MARIJUANA: Dad denies smoking marijuana in front of his kids.

Gladstone man warned over smoking a joint with his teen lover.

He 'can't remember' Barney Pt crash after rum, beer binge

Christopher Holden leaves Gladstone Courthouse.

Binge drink driver hits parked van and then a pole in Barney Point.

Local Partners

Steve Irwin's final days through dad's eyes

Bob Irwin with his son Steve.

'You never expect that’s the last time you’re going to see your son'

Kristie doesn't mind being the third wheel in Survivor final

Kristie Bennett in a scene from Australian Survivor.

SOLO player will take on Survivor's power couple Lee and El tonight.

Scary hoping Posh and Sporty will re-join The Spice Girls

Mel B

Mel B hoping Victoria Beckham, Mel C will re-join The Spice Girls

REVIEW: Michael McIntyre has Brisbane in stitches

Michael McIntyre in a scene from his TV series Michael McIntyre's Comedy Roadshow.

BRITISH comedian is in the country on his Happy and Glorious Tour.

Cliff Richard doesn't need Rod Stewart's help with legal bills

Sir Cliff Richard

"'Don't worry, I'm loaded. I won't keep you to it.' "

Woolies announces closure of Ipswich store

Woolworths in the Ipswich Mall.Photo: Rob Williams / The Queensland Times

The last day of trading will be January 1

Coles to pay new owner of Tannum servo $320K

UP FOR GRABS: Expressions of interest in Tannum's new service station, which will house the new Coles Express, closed this month.

INVESTORS bid for new Tannum service station under construction.

Look at me! Kath and Kim home up for sale

Kath and Kim from the iconic Aussie TV series.

'Crack open the Baileys and grab a box of BBQ Shapes'

How to fit 100,000 new homes on the Coast

Property, real estate, housing, suburb,  August 2016

Fitting 2m extra people in south-east Qld in 25 years a balance

Hinterland horse stud passed in for $8.25 million

UNREAL: This Maleny estate is incredible.

12-bedroom hinterland horse stud still available

Hit songwriter's Noosa mansion on market

SPECIAL PLACE: The Cintamani estate is going to tender, marketed by Tom Offermann Real Estate.

Is this Queensland's best property?