UPDATE 1-Australia's Origin signs binding sales agreement with Kansai

Thu Nov 17, 2011 2:32am EST

* Origin to decide on train 2 LNG project by Q1 2012

* Continues sales and equity discussions for train 2

By Rebekah Kebede

PERTH, Nov 17 (Reuters) - Origin Energy said on Thursday it had signed a binding heads of agreement to supply Japan's Kansai Electric Power with liquefied natural gas (LNG) from its Australia Pacific LNG project in eastern Australia.

The contract will pave the way for Origin to make a final investment decision on a second train for the project, but the company is still in talks to secure the rest of the buyers it needs to go ahead with the project early next year.

"It is a significant step, but doesn't take us to full capacity in any way. Provided that we make the second train commitment by first quarter next year, we will maintain the time table of first gas in 2016," Karen Moses, Origin's executive director of finance & strategy told reporters.

Under the agreement, Kansai will buy 1 million tonnes of LNG for 20 years, beginning 2016.

Australia Pacific LNG is a joint venture between ConocoPhillips and Origin and work on a first LNG train is already under way after being approved in July.

The deal with Kansai did not include any equity in the project, but Moses said Kansai may still be a candidate for buying equity in the project.

"We continue to have conversations with many parties around equity," Moses said.

Controversy in Australia around coal seam gas, which will be used to feed the Australia Pacific LNG plant, has not delayed discussions with customers interested in buying gas from the project, Moses said.

"It has not caused any change in the progress with any of the customers," she said.

Coal seam gas has been a focus of criticism with farmers groups and environmentalists saying it could endanger water quality in one of Australia's most productive agricultural regions.

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