ORG hurls cheap gas at Asia as you pay the price

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Gas cartelier, Origin Energy, today released its Q2 production report and it’s a shocker if you’re an east coast manufacturing business or household. Here’s it’s costs:

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$1.66Gj average gas extraction cost for APLNG. You can add roughly $1.50 for liquifaction and shipping so it’s delivering gas to North Asia for $3.30mmBtu or so cash cost.

Then it’s revenue:

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It sold the gas for $5.23mmBtu. Looks like a good profit except it does not include anything other than operational costs so when you include the cost of building the plant, running the firm, debt etc it will be losing money on an all-in basis.

Not that that matters. That’s mostly sunk cost so ORG will keep shipping this gas as fast it is able while it is above cash cost. For now it is no danger of cutting those volumes, indeed it wants to run at uber-capacity to boost cash flow and pay down debt. It says so straight out:

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Unit costs will keep falling with the second train so it may well be able to keep flooding Asia with gas right down below $3mmBtu.

Meanwhile, you’re paying…wait for it…$7.90mmBtu:

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Go Australia.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.