July 28, 2011 / 1:35 AM / in 6 years

UPDATE 2-Australia's Origin makes final investment decision on APLNG

* First phase of APLNG to cost $14 bln

* Entire two train project will cost $20 bln

* First train to start up in 2015, second train in 2016

* Origin in advanced talks with buyers for train two LNG (Adds analyst comments, details)

By Rebekah Kebede

PERTH, July 28 (Reuters) - Origin Energy and ConocoPhillips approved the $14 billion first phase of their Australia Pacific LNG export project on Thursday, joining a crowded field of LNG developers struggling to keep costs for labour and materials in check.

The joint venture is focusing on the first train, which is expected to start in 2015, as Australia Pacific LNG secures customers for the second LNG train, which will come online in 2016, the company said.

Australia Pacific LNG will likely face stiff competition for resources and labour one of three major LNG projects underway in Australia’s eastern Queensland state, where energy companies have plans to sink tens of billions into coal seam gas to LNG projects.

“It’s not surprising that they wanted to get into the development queue ... Australian resources are very stretched right now,” Noelle Leonard, a consultant with FACTS Global Energy in Perth.

Australia’s resources sector has been booming as demand for LNG as well as other commodities such as iron ore and coal has increased competition for supplies and escalated project development costs, especially labour.

Origin said it is in advanced discussions with potential customers and the full two-train LNG development will have a capacity of 9 million tonnes per year and will cost $20 billion.

Still, some said a decision on just a single train of a two-train project might not be received well by the company’s shareholders.

Origin shares on the Australian stock exchange had dipped just over one percent late Thursday morning and ConocoPhillips shares were down about 0.6 percent.

Origin and ConocoPhillips both hold a 42.5 percent stake in the project, while China’s Sinopec has a 15 percent stake as well as an agreement to purchase 4.3 million tonnes per annum (mtpa) of LNG for 20 years, which underpinned the first train of the project.

SECOND TRAIN CLOSE BEHIND?

Australia Pacific’s second phase will be another 4.5 million tonne per annum LNG train and Origin said it was in advanced discussions with customers for the LNG from the second train.

Analysts said a sales and final investment decision on the second phase are not far off.

“The capex sum committed at this stage clearly includes some provision for a second train and points to a strong degree of confidence that Origin and ConocoPhillips are close to announcing further sales agreement(s). We see this as a positive indicator for a two-train project,” Craig McMahon, a Wood Mackenzie analyst based in Perth, said in an email.

Origin’s managing director Grant King said the second train will likely be underwritten by a number of customers with an offtake of one to two million tonnes per year rather than a large customer such as Sinopec, which bought most of the LNG expected from train one.

“We believe the prospects of the LNG market have improved relative to, say, six months ago, certainly relative to 12 or 18 months ago,” King said.

Although he acknowledged the increased LNG demand has been in part due to the Japanese nuclear crisis which created demand for LNG when several reactors were knocked offline, King said demand has also emerged from other regions in Asia.

“We’ve seen in the last six months the emergence of southeast Asian nations as well,” King said.

“It’s no secret that you’ve seen the emergence of Thailand, Malaysia through the GLNG project and even Indonesia to emerge as buyers in that 2015 to 2016 window.”

Thailand opened the first LNG receiving terminal earlier this year and several Southeast Asian nations are expected to follow suit in the next several years.

Reporting by Rebekah Kebede in Perth; additional reporting by Ed Davies in Sydney; Editing by Ed Lane

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