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.
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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.