PNG LNG

3.58pm: Investors are underestimating the value of the three mammoth liquefied natural gasprojects nearing completion in Queensland and the magnitude of the cash they will generate for companies like Santos and Origin over the next two to three decades, say Morgan Stanley analysts.

Three LNG projects currently under construction near Gladstone are expected to move into production by 2015, they include the Santos-Total GLNG project, Origin Energy’s APLNG and British giant BG Group’s project.
Oil Search’s PNG LNG project is also tipped to launch its third train of LNG production in 2015, and Morgan Stanley believes this will bring about a substantial jump in its annual production to 80-90 million barrels of oil equivalent.

“In our view, the market underestimates the magnitude and value of the free cash-flow set to flow to these businesses over the next 20 to 30 years,” wrote Morgan Stanley analyst, Malcolm Wood, in a note to clients.
Santos’ LNG project in Gladstone, Northern Queensland, is 80 per cent complete and expected to come on stream in 2015 with a capacity of 7.2 million metric tons per year. It also has a significant stake in Oil Search’s Papua New Guinea LNG project.

Macquarie analyst Adrian Wood believes the PNG project has the right conditions to gain a competitive advantage.

“There are three main advantages to being in PNG, they have a high liquid yield, onshore developments and access to cheaper labour,” Mr Wood said. “But the biggest difference between PNG and Australia is the fiscal terms.”
PNG, like Australia, charges a 30 per cent corporate tax rate, along with a very small royalty tax.
Australia charges a 40 per cent petroleum resource rent tax on top of the corporate tax.