Australia Pacific LNG price cut for Sinopec to hit Origin profit

Origin Energy announced that Australia Pacific LNG (APLNG) has agreed to a price cut on LNG sales to Sinopec for the remaining 10 years of their contract, effective January 1, 2025. This reduction in the JCC-linked contract slope, resulting from a price review of their 20-year agreement, is projected to lower Origin's EBITDA from its APLNG stake by A$55 million for the six months to June 2025. Sinopec purchases 7.6 million metric tons per year of LNG from APLNG, where it is a partner with Origin and ConocoPhillips.

Analysis

Origin Energy has announced a significant development impacting its Australia Pacific LNG (APLNG) joint venture: a price reduction on liquefied natural gas sales to China's Sinopec, effective January 1, 2025, for the remaining ten years of their supply contract. This adjustment, resulting from a scheduled price review, involves a decrease in the JCC-linked contract slope. Consequently, Origin Energy projects a A$55 million (approximately $35.39 million USD) reduction in its earnings before income, tax, depreciation, and amortisation (EBITDA) from its APLNG stake for the six months leading up to June 2025. Sinopec, which purchases 7.6 million metric tons of LNG annually from APLNG, is a partner in the Queensland-based project alongside Origin and operator ConocoPhillips (COP.N). This outcome contrasts with a 2020 price review initiated by Sinopec that did not lead to any contractual changes. A final price review is scheduled for 2030, at APLNG's discretion. The general sentiment surrounding this news is moderately negative (sentiment score -0.5), reflecting the anticipated earnings impact on APLNG partners, including ConocoPhillips, which also registered a moderately negative per-ticker sentiment.

Key Decisions for Investors

• Investors in Origin Energy and ConocoPhillips should factor in the direct negative impact on APLNG-derived earnings from January 2025, specifically noting Origin's A$55 million projected EBITDA reduction for H1 2025.
• Re-evaluate long-term valuation models for Origin Energy and ConocoPhillips to account for the sustained reduction in revenue from this significant APLNG contract with Sinopec over the next decade.
• Monitor the broader LNG market for potential knock-on effects, as this price concession to a major buyer under a JCC-linked contract could influence future negotiations for other long-term LNG supply agreements.
• For ConocoPhillips shareholders, assess the materiality of APLNG's contribution to the company's overall financial performance and diversification, considering the specific negative sentiment signal associated with its involvement.