PERTH (miningweekly.com) – Energy major Origin Energy has warned of a A$30-million to A$40-million increase in the company’s cost of supply for the 2021 financial year, and a further A$60-million to A$80-million increase in 2022.
Origin has been engaged in a price review for the gas purchased from fellow-listed Beach Energy’s Otway Basin fields, which has been referred to arbitration.
The arbitrator has now issued a partial award, and on the basis of that decision, Origin noted that the new gas price was likely to be dramatically above the company’s expectations and recent comparable wholesale contracts, resulting in the increased cost of supply.
The pricing outcome is binding over 2021 to 2023, with limited rights to appeal, with Origin saying on Friday that the company would assess the timing and extent to which this increased cost of supply could be mitigated.
“We are disappointed in this decision which we believe is wrong, and entirely inconsistent with our prior experience in the gas market. This will result in a gas price that does not reflect market prices, and is therefore a very poor outcome,” said CEO Frank Calabria.
A further 8 PJ of gas supply is expected to undergo a price review in 2022 related to a contract with Beach Energy from its Cooper basin operations.
Origin noted that in addition to the arbitration outcome, the continued subdued energy demand and wholesale pricing, along with a lower-than-expected contribution from Octopus Energy, have affected the company’s near-term outlook.
As a result, the company has revised its Energy Markets underlying earnings before interest, taxes, depreciation and amortization guidance for 2021 to between A$940-million and A$1.02-billion.
For its Integrated Gas business, Origin expected the cash distribution from its Australia Pacific liquefied natural gas project to be more than A$650-million, driven by the continued strong production and capital and operating cost discipline, resulting in a lower distribution breakeven of $22/bl to $25/bl of oil equivalent.