Under the deal, announced Wednesday, Origin Energy will purchase up to 139 petajoules of Beach Energy's natural gas production from Moomba in South Australia for eight years, starting in 2015.
While the two companies did not provide specific figures, Beach has been putting off the finalization of the contract for more than a year in an attempt to benefit from the increase in domestic gas prices driven by Gladstone, Queensland's liquefied natural gas boom, The Herald reports.
Royal Bank of Canada analyst Andrew Williams told The Wall Street Journal that the market had expected Santos to be the buyer. Because Santos has signed supply contracts beyond 2015 at nearly $9.48 per gigajoule, the pricing for Origin could also be as high as $9.48 per gigajoule even though current gas prices in Queensland are less than half that amount.
At $9.48, the 139 petajoules – enough to power about 2 million average households for a year – totals more than $1 billion.
Beach's chief executive Reginald Nelson told the Journal the undisclosed amount of the agreement with Origin is "comfortably within our expectations in a competitive market."
The agreement also includes a clause for Origin to extend the deal by an extra two years and an extra 34 petajoules. The gas is to be sourced by conventional methods from South Australia's Cooper Basin.
Origin Energy Markets Chief Executive Officer Frank Calabria in a statement said the gas purchase agreement enables Origin "to bolster its east coast gas portfolio given the expected tripling in demand for natural gas."
"Origin's integrated position, coupled with its existing gas transport capabilities, made this an attractive opportunity to add to the company's gas portfolio and to secure gas to support our domestic energy markets business," Calabria said.
Natural gas prices in Australia's east cost -- which includes major cities Sydney, Melbourne and Brisbane – have ranged from about $3.14 to $4.21. But analysts and industry executives have warned of a price increase due to gas-export terminals planned on the coastline, expected to be operational by 2017, the Journal reports.
Speaking at the Australian Domestic Gas Outlook Conference in Sydney on Wednesday, Origin's Calabria said, "We need to be clear that gas prices in the period ahead will be above historical levels."
Noting that Australia's geological make-up is "quite different" than that of the United States, Calabria said "the forces at play currently depressing U.S. gas prices don't exist here."
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