Origin Energy Ready to Embrace Soft Gas Markets? Quarterly Earnings and Market Scenario Discussed

Summary

• Origin Energy Limited (ASX:ORG) reduced drilling activities at its Queensland LNG plant as the gas market softens.
• The Company witnessed a 39 per cent decline in the quarterly revenue on account of lower realised price and sales volume.
• The quarterly integrated gas sales declined by 4 per cent against pcp at 57.4 petajoules.
• ORG realised 39 per cent lower commodity price during the quarter at $6.52 per gigajoules, which was 40 per cent down against pcp.
• Electricity demand across NEM states improved, except in Victoria due to extensive lockdowns.
• Energy and Natural gas: production, sales, and demand figures.

Origin Energy Limited (ASX:ORG) trims drilling activities at its Queensland LNG plant over the soft gas market and changing commercial landscape across the continent.

The energy explorer, producer, and retailer recently reported its quarterly earnings with a 39 per cent decline in revenue for the quarter ended 30 September 2020. The decline in revenue was primarily due to lower realised price and lower sales volume.

Also Read: Origin Energy Poised to Bring Radical Changes in Customer Experience and Cost Measures  

Integrated Gas – Production and Sales

The gas production for the period stood at 64.2 petajoules, unchanged as compared to the previous quarter; however, down by 3 per cent against the previous corresponding period (pcp).

• While the production remained in line with the previous quarter, the quarterly sales declined by 4 per cent to stand at 57.4 petajoules, which also remained 9 per cent down against pcp.
• The commodity revenue took a hit of 39 per cent against the previous quarter at USD 373.9 million, down 46 per cent against pcp.
• The decline in the commodity revenue was majorly due to the soft market condition, leading to a decline in the average commodity realised price on sales.
• ORG realised 39 per cent lower commodity price during the quarter at $6.52 per gigajoules, which also remained 40 per cent down against pcp.

Commenting on the quarterly performance of the gas operation, CEO Frank Calabria suggested that lower realised prices were expected.

Furthermore, adding to the comments, Mr Calabria mentioned that ORG had reduced drilling activity for the year across upstream operations at Australia Pacific LNG due to subdued LNG demand, leading to a decline of USD 33 million in ORG’s capital expenditure.

Australia Pacific LNG realised lagged oil price during the quarter came in at USD 43 a barrel against the previous quarter, down 36.76 per cent. However, JCC prices improved slightly during the period, reflecting a continued recovery in global oil demand coinciding with OPEC+ supply restrictions and U.S. production curtailment.

Energy Market and Natural Gas Sales

During the period, ORG managed to sell 8.7 terawatt-hours of electricity, which remained 11 per cent up against the previous quarter, but a one per cent down against pcp.

• Natural gas sales during the period increase 7 per cent at 72.0 petajoules against the previous quarter; however, was 7 per cent down against pcp.
• The average electricity prices across the National Electricity Market (NEM) plunged by ~ 47.18 per cent against pcp at USD 42.2 megawatt-hours, which remained slightly up against the previous quarter.
• The decline in NEM prices was primarily led by lower demand, lower fuels cost for gas and coal generation and increased renewable penetration.
• Likewise, the average domestic spot gas price declined by ~ 44.14 per cent during the period against pcp at USD 4.53 per gigajoules, driven by linkage to Asian LNG prices, which declined significantly due to the impact of COVID-19 outbreak on demand and storage levels.

Also Read: NEM Prices Average At Multi-year Low As Demand Dazes And Gas Price Declines in Q12020

Energy And Natural Gas – Retail and Business Volumes

• Energy retail volumes during the quarter surged by 5 per cent against pcp due to a net increase of 0.2 terawatt hour higher residential demand.
• However, business volumes remained 6 per cent down against pcp as COVID-19 took a toll on business activities.
• Likewise, natural gas retail sales surged 5 per cent against pcp due to a 0.4 petajoules increase in the residential demand over cooler winter, and higher customer numbers.
• Business volumes declined by 5 per cent against pcp over lower demand from wholesale customers, which declined by 4.1 petajoules.

Also Read: Strong Electricity Consumption Yet Weaker Profitability for Origin Energy and Whitehaven Coal

State Electricity Demand

The electricity demand across all NEM states, except Victoria, was restored during the period to FY2019 levels over a change in weather conditions, reflecting higher residential demand. However, the increase in residential electricity demand was indemnified by reductions in SME and C&I, which have partially recovered since the June-20 quarter.

At present, the stock of the Company is under a downtrend with the price trailing down from the level of $8.890 (intraday high on 19 December 2020) to the recent low of $3.990 (intraday low on 30 October 2020).

On 05 November 2020 ORG is taking a breather on ASX after good rally in the past 2 days. ORG was trading at $4.215, marginally down by 0.8% (AEDT: 12:40 PM).