Origin Energy Limited (ASX: ORG) and American partner ConocoPhillips has announced the approval of the $20 billion funding required in its liquefied gas project in Australia that targets to supply the Asian Region.

In an emailed statement, Origin said on Thursday that the Board of Australia Pacific LNG has approved a Final Investment Decision on the first phase of a two train CSG to LNG project in Queensland.

Approval Highlights:

  • Final Investment Decision taken on the Australia Pacific LNG project initiating development of the first LNG train and infrastructure to support a second train1
  • US$14 billion for the first phase, US$20 billion capital cost for a full two-train development
  • Sinopec equity subscription unconditional
  • Australia's largest single LNG contract to commence shipments in 2015
  • Contingent FID payment for Train 1 deferred

Origin Energy Managing Director, Mr Grant King said that the approval commences one of the country's largest LNG export projects.

"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 off-take agreements are finalised," said Mr King.

Australia Pacific LNG is well positioned to progress to a full two-train project that will have a capacity of 9 million tonnes per annum at a capital cost of US$20 billion.

The approval will result in investment in the first phase of the project of US$14 billion to service the sale and purchase agreement executed with China Petroleum & Chemical Corp (Sinopec) for 4.3 million tonnes per annum - the largest single LNG sales agreement by annual volume ever signed for delivery from Australia.

China's Sinopec

The agreement for Sinopec2 to subscribe for a 15 percent equity interest in the Australia Pacific LNG joint venture is now unconditional with completion due to occur shortly.

"We welcome Sinopec into the Australia Pacific LNG joint venture. Sinopec's strong position in the Chinese market complements the proven CSG development capabilities of Origin and ConocoPhillips together with ConocoPhillips' expertise in the licensing and use of Optimised Cascade® LNG technology," Mr King added.

"Based on Australia's largest 2P CSG reserves, the Australia Pacific LNG project will become a supplier of low emissions fuel to growing international energy markets as well as continuing to contribute cleaner energy through its domestic production, equivalent to more than 40 per cent of Queensland's current gas requirements.

Total capital expenditure for a two-train project is estimated to be US$20 billion, including approximately US$2.5 billion contingency, and covers the period from FID until the commencement of gas deliveries from Train 2 expected in early 2016. The Board of Australia Pacific LNG today announced investment of US$14 billion of total capital costs for the first train plus infrastructure commitments to support a second train, which includes approximately US$1.7 billion contingency.

First LNG exports are planned to commence in 2015, underpinned by an agreement with Sinopec for the purchase of 4.3 million tonnes per annum of LNG for 20 years. Australia Pacific LNG is in advanced discussions with potential customers regarding further off-take arrangements for the second LNG train.

The company further said that Agreements have been reached with major contractors and a number of project works have already commenced. Moreover, fixed price EPC contracts for the LNG facility have been awarded to Bechtel, building on the successful collaboration between ConocoPhillips and Bechtel using ConocoPhillips' Optimized Cascade® LNG Process.

"The contract with Bechtel for the construction of the LNG facility on Curtis Island draws on a history of more than 40 years between Bechtel and ConocoPhillips during which time nine LNG trains have been completed across the world. Their combined track record of delivery is outstanding," Mr King said.

A joint venture between McConnell Dowell Constructors and Consolidated Contractors Australia Joint Venture (MCJV) will enter a fixed price pipeline construction contract. MCJV is an Australian-based international contractor experienced in delivering large pipeline projects. In addition, Nippon Steel via Metal One Corporation will supply steel pipe to the project.

Origin will manage the overall upstream project. The upstream drilling program and its associated contracts leverage Origin's 14 years of production experience in the CSG sector in Australia.

Multiple specialised contractors will design associated facilities, including a control network to manage gas production and a power distribution system that incorporates underground power to selected wellhead pumps. Upstream contracts have been awarded for the supply and operation of drilling rigs, and for the supply of compressor trains for the upstream gas gathering facilities.

Reserves

Australia Pacific LNG also announced today an increase in its 2P reserves from 11,262 PJ at 31 December 2010 to 11,775 PJ at 30 June 2011, with 3P reserves increasing from 14,602 PJ to 14,742 PJ3. This represents Australia's largest CSG 2P reserves base. It includes extensive acreage within the premier production fairways providing high quality gas resources with high deliverability. Australia Pacific LNG's resource base also includes an additional 10,050 PJ of 3C contingent resource.