Origin Energy’s LNG Revenue Decline: A Temporary Hurdle or Structural Challenge?

Origin Energy Limited (ORG.AX) reported a 5% drop in revenue from its Australia Pacific LNG (APLNG) joint venture in the March 2025 quarter, marking the latest chapter in a volatile period for the company’s gas division. The decline, driven by lower LNG prices and operational disruptions, raises questions about the sustainability of APLNG’s performance amid shifting market dynamics and production challenges.

Key Drivers of the Revenue Decline

The March quarter saw APLNG’s LNG sales volumes fall 7% to 160.5 petajoules (PJ), with revenue dropping to $2.43 billion—a 11% sequential decline from the December 2024 quarter. Two primary factors contributed to this outcome:
1. Lower Gas Prices: The average realized LNG price for APLNG in late 2024 was $12.20/mmbtu, but volatility in Asian spot markets pressured margins in early 2025. Domestic gas prices (AVX) also lagged behind export prices, widening the disparity that fuels domestic supply shortages.
2. Operational Headwinds: Tropical Cyclone Alfred disrupted operations, while underperformance at key fields like Condabri and Talinga highlighted aging infrastructure. Production guidance for FY2025 was trimmed to 670–690 PJ, a 2–3% reduction from prior expectations.

Contextualizing the Decline: A Pattern or Anomaly?

This drop follows a 10% revenue slump in Q1 2024, suggesting recurring operational and market challenges. However, the December 2024 quarter saw a 3% revenue rebound due to higher LNG volumes and prices, hinting at short-term volatility rather than a sustained downturn.

Investors reacted cautiously to the March results, with shares falling 2% to $10.56. The decline contrasts with APLNG’s $185 million dividend payment in March, which brought full-year distributions to $797 million—a testament to cash flow resilience despite revenue pressures.

Strategic Responses and Risks Ahead

Origin is countering these challenges through:
- New Supply Agreements: A 10-year deal with Queensland Curtis LNG secures 350 PJ of gas, stabilizing APLNG’s feedstock.
- Cost Controls: Unit capital expenditures remain within $3.9–$4.3/GJ, supported by efficiency gains.
- LNG Trading Gains: While FY2025 trading EBITDA is projected to hit $400–$450 million, guidance for FY2026 drops to $50–$150 million, signaling market uncertainty.

However, risks loom large:
- Declining Production: Aging fields and deferred maintenance could erode output further.
- Global LNG Glut: A projected oversupply by 2025 may depress prices, squeezing margins.
- Domestic Supply Gaps: Australia’s east coast faces a structural shortage by 2027, raising pressure to redirect LNG exports domestically—a policy shift that could disrupt export revenue.

Market Outlook and Investment Implications

APLNG’s performance remains tied to three variables:
1. Global LNG Prices: Asian spot prices, now averaging $12–$14/mmbtu, are critical to APLNG’s profitability.
2. Operational Efficiency: Well optimization and field management will determine if production can stabilize near 680 PJ/year.
3. Policy Decisions: Federal elections in 2025 may influence whether export restrictions or import terminals (e.g., Port Kembla) reshape the gas market.

Investors should monitor Origin’s ability to balance LNG trading gains with declining production. While the dividend stream provides near-term stability, long-term value hinges on resolving structural supply issues and adapting to a shifting LNG landscape.

Conclusion: A Steep Climb, But Not Yet a Dead End

Origin Energy’s Q1 2025 LNG revenue decline is a symptom of broader industry challenges rather than a terminal illness. With $400 million in trading gains still on the horizon for FY2025 and strategic moves like the Queensland Curtis agreement, the company retains pathways to stabilize cash flows. However, the outlook hinges on overcoming operational bottlenecks, navigating global price fluctuations, and advocating for policies that align LNG exports with domestic energy needs.

For now, the 5% revenue drop is a speed bump, not a roadblock—but investors should brace for continued turbulence in Australia’s gas sector.