Australian integrated energy company Origin Energy Limited has reassured its investors that China Petrochemical Corp. (Sinopec) will fulfill its end of the agreement to buy AUD 24.7 billion (USD 19 billion) worth of liquefied natural gas (LNG) from the Australia Pacific LNG project, a joint venture between Origin (37.5%), ConocoPhillips (37.5%), and Sinopec (25%).
Responding to market speculation, Origin issued a statement saying that the company’s sale and purchase agreement of 7.6 million tonnes per annum to Sinopec is structured as a take-or-pay agreement. According to Origin, these agreements offer flexibility to Origin and ConocoPhillips to determine the start date for supply of LNG to Sinopec.
This is intended to occur after successful commissioning to ensure that the project can meet its obligations to supply cargoes under the SPA.
The LNG produced during the commissioning phase will be sold under short term contracts. Australia Pacific LNG has begun to contract these commissioning cargoes, Origin says.
Whilst Sinopec’s take-or-pay obligation will commence on the start date determined in accordance with the SPA, the SPA does provide Sinopec with flexibility in terms of where it can take the cargoes, in order to manage the build up of key infrastructure and markets, according to the statement.
As the SPA is structured on a Free on Board basis, any exercise of this flexibility by Sinopec would not impact Australian Pacific LNG’s rights under the SPA.
Origin says that the Australia Pacific LNG project remains on track for sustained production from Train 1 in the second quarter of the 2016 financial year.