APLNG take huge sale drop in China deal

ORIGIN Energy has signed a five year LNG sale deal with one of China's largest gas distributors, but the volume supplied is almost half of what was previously agreed upon.

This week Origin Energy, which owns Australia Pacific LNG on Curtis Island, announced its deal to supply China's ENN Energy Holdings with 280,000 tonnes a year of LNG for five years.

It's a significant drop from the initial non-binding agreement between the two companies for 500,000 tonnes a year, announced in March.

Oil and gas industries are firming up their deals for 2017 after oil prices stooped to the historically low price of $26 per barrel last year.

But a fixed-price deal Origin made two years ago for 2017 could see it cushioned from any future price drops.

In 2017, Origin will sell 75% of its LNG shipments at a fixed price of $55 per barrel.

The other 25% will be sold at $40 a barrel.

Respected business analysts Wood Mackenzie say in their 2017 forecast for oil and gas that much of the industry will turn cash flow positive for the first time in years.

Senior vice president of corporate analysis research Tom Ellacott said next year strengthening finances and adapting portfolios would be the main priorities in the industry.

"Most oil and gas companies will start 2017 on a firmer footing, having halved cash flow break evens to survive the past two years," Mr Ellacott said.

The report also found there would be "modest growth in production" within the industry.

"Further evidence of a cautious U-shaped recovery in investment should emerge," the report read.

Origin posted a loss of $589 million in 2015-16 and reduced its net debt by $4 billion to $9.1 billion, in line with its targets set for 2017.

Deliveries of LNG under the sales and purchase agreement are expected to begin in the 2018 or 2019 calendar year, following completion of ENN's Zhoushan receiving terminal in the Zhejiang province, China.

Former Origin Energy chief executive Grant King told The Observer in October, Origin would be connected to growing markets for gas including in Asia.

"These nations also seek to improve the reliability, affordability and sustainability of their energy supply," he said.

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