Australia Pacific LNG, a joint venture between Australia's Origin Energy and US-based ConocoPhillips, Thursday approved the first stage of development for its $20 billion coalseam gas-based LNG project on Curtis Island in the eastern state of Queensland.
The final investment decision signals the go-ahead for Australia's third world-scale coalseam gas-to-LNG project based on the massive reserves in Queensland's Surat and Bowen basins.
APLNG's project will initially involve the development of a first 4.5 million mt/year LNG production train and infrastructure to support a second train. The first phase of the project will cost $14 billion, the company said.
The FID triggers further development and production of APLNG's coalseam fields in regional Queensland, the construction of a gas transmission pipeline, and the construction of the LNG facilities and associated export infrastructure on Curtis Island in the port city of Gladstone.
The upstream operations are to be operated by Origin. ConocoPhillips, which already operates a 3.6 million mt/year LNG plant in the northern Australian city of Darwin, will be responsible for the downstream facilities.
"The FID for this first phase provides an economically attractive project and allows all the synergies of a two-train project to be captured once further offtake agreements are finalized," Origin Energy Managing Director Grant King said in a statement.
APLNG said it was well positioned to progress to a full two-train project, which would have a capacity of 9 million mt/year and cost a total of $20 billion. Discussions with potential customers for volumes from the second train are well advanced, the company added.
The capital expenditure approved Thursday excludes the cost of developing the second LNG train itself and the upstream drilling program to support the second train, APLNG said. Spending for that work is to be committed separately at the time of FID for the second train.
First gas from train one is expected in mid-2015. Train two is scheduled to start up in early 2016.
The first LNG train will service APLNG's 20-year sales and purchase agreement with China Petroleum & Chemical Corporation, known as Sinopec Corporation. APLNG in April this year agreed to supply Sinopec with 4.3 million mt/year from the project, marking Australia's largest-ever single LNG sales agreement by volume.
The Chinese state-controlled giant also agreed to pay $1.5 billion for a 15% equity interest in the APLNG joint venture, with the shares held by Origin and ConocoPhillips set to reduce to 42.5%. That deal is now unconditional and is expected to be completed shortly.
Fixed price engineering, procurement and construction contracts for the LNG facility have been awarded to Bechtel, King said. A joint venture between McConnell Dowell Constructors and Consolidated Contractors Australia Joint Venture is set to sign a fixed price pipeline construction contract, and will be supplied with steel by Nippon Steel via Metal One Corporation.
APLNG holds Australia's largest coalseam gas reserves base, which has been upgraded to 11,775 petajoules or around 11 Tcf on a proven and probable basis. The company's proven, probable and possibles reserves are 14,742 PJ and it holds another 10,050 PJ of contingent resources.
The go-ahead for APLNG follows approvals late last year and early this year for two other coalseam gas-to-LNG projects on Curtis Island. UK-based BG Group and a consortium led by Australia's Santos are already building two-train LNG projects at sites on the island.
BG's $15 billion project will produce 8.5 million mt/year and is targeted for startup in 2014. The Santos-led group, which includes Petronas, Total and Korea Gas Corporation, has begun work on a $16 billion, 7.8 million mt/year facility, aiming for startup in 2015.
Arrow Energy, a joint venture between Shell and PetroChina, is planning a fourth project at the LNG precinct, expected to go to FID in 2012. That plant would produce 8 million mt/year of LNG.
Meanwhile, a $500 million contingency payment which was due to be made by ConocoPhillips to Origin at FID has been deferred and will now now be made when the APPLNG project pays out an agreed economic return on total investment to ConocoPhillips.
