Oil price too low to see return for Origin Energy plant
AUSTRALIA Pacific LNG's first shipment of liquefied natural gas on Saturday was exported into a market where the low oil prices mean Origin Energy won't even cover the operational and financing costs for the plant.
According to Origin's 2015 annual report, the company requires the oil price to be around $55 a barrel to receive a cash flow distribution from APLNG but the prices finished below that on Friday at $47.29.
If oil is at $100 a barrel, Origin expects to make $900 million in cash flow per year but with each drop of $10 that amount decreases by $200 million.
And the price continued to drop this week, finishing below $45 a barrel on Monday.
Origin Energy managing director Grant King was still positive when announcing the first shipment from APLNG though.
"This is a landmark moment in the history of Origin," he said as the project that cost the company $25 million and seven years to build exported gas for the first time.
"LNG plants have a long operational life and (APLNG) is expected to deliver a significant amount of earnings to Origin," he said.
In a move to protect the company from any potential further price drop, in December Origin brokered a deal for 2017 LNG shipments at a fixed price.
That is to sell 75% of shipments at $55 a barrel and the rest at $40 a barrel which would still see the company operating at a loss but does reduce risk.
"With the continued decline in oil prices, Origin has acted to reduce the potential requirement for the company to make additional contributions to (APLNG)," Mr King said.
He said if oil prices were at $28 a barrel the company would have to contribute around $200 million to APLNG.