Why the Origin Energy Ltd share price is up 3.6% today

What: Shares in leading vertically integrated energy business Origin Energy Ltd (ASX: ORG) jumped 3.6% on Tuesday, beating the 0.8% rise in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), after the group announced that it had signed a non-binding agreement to supply LNG to one of China’s largest private energy companies, ENN Group.

So What: The ENN contract is for the supply of 500,000 tonnes of LNG per year for a period of five years beginning in 2018 or 2019 after ENN completes the construction of an LNG receiving terminal in Zhejiang province, China. By mutual agreement, the parties have the ability to extend the supply period by an additional five years.

Importantly, a binding LNG SPA is expected to be executed during the second half of calendar year 2016.

Commenting on the announcement, Origin’s CEO of the Integrated Gas division noted that the “agreement represents a significant milestone in the relationship between Origin and ENN, and in the development of Origin’s LNG business.”

Now What: Origin Energy has been forced to navigate the start-up of its LNG project in what has turned out to be almost precisely the worst time in the oil market cycle.

The uncertainty that this scenario has created, coupled with the general problem of reduced earnings from weak oil and gas prices has resulted in significant share price declines.

With the oil cycle bound to turn sooner or later, good news flow such as Tuesday’s announcement from Origin could spark some renewed buying interest in energy stocks.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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