No change expected to APLNG contract, Origin says

WEAK LNG world markets are fuelling speculation that one of the major buyers of gas from Gladstone's APLNG project will seek to renegotiate its contract.

Citigroup expects LNG markets to remain weak well into next decade, causing delays to new projects in Australia and Papua New Guinea, and driving contract prices lower, Fairfax reports.

Gas demand in China has fallen well short of forecasts, leaving Asian LNG markets facing oversupply for several years as a wave of new plants begin production in Australia, with three on Gladstone's Curtis Island.

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The market glut has led to some speculation that Sinopec, the major customer for the APLNG project, is seeking to renegotiate its purchase contract, but Citigroup said it expected the contract terms to hold firm.

"We think contractually Sinopec has no option to renegotiate, APLNG is protected by the contract, and Sinopec will need to instead trade excess LNG on to others, potentially at a loss," Citigroup said.

Origin Energy, one of the APLNG joint venture partners, has said it expected Sinopec to stick to its take-or-pay contract to buy 7.6 million tonnes a year of LNG from APLNG, more than 85 per cent of the project's total capacity.

The contract allows Sinopec flexibility in terms of where it can take the LNG cargo, in order to build up key infrastructure and markets, Origin said.

The Australia Pacific LNG project remains on track for sustained production from Train 1 in the second quarter of the 2015 financial year.


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