Arrow said the agreement with Liquegas Energy is initially for 2 petajoules per annum over 15 years, with first gas supply expected during the first half of 2009.

According to Arrow, the agreement establishes a “commercial framework” for supplying gase into the LNG plant, which will be located on land currently owned by Arrow at Daandine, Queensland. The two companies are aiming to finalise a gas sales agreement within the next month.

The LNG produced from the plant will be targeted to customers in southern Queensland and northern New South Wales. Arrow chief executive Nick Davies told PNN that he understood it would bve mostly used for long-haul trucking as a diesel and LPG replacement fuel.

Davies said last year that Queensland coal seam methane suppliers would have to look beyond the electricity generation market for growth.

The company has been examining the potential for the use of CSM to produce gas-to-liquids, compressed natural gas and small-scale LNG. Arrow recently now completed a GTL pre-feasibility study and is beginning a CNG study. This agreement with Liquegas completes progress on the third leg of the strategy and could lead to “the birth of a whole new industry”, according to Davies.

"Power generation gas supply contracts are good to help coal seam gas companies establish themselves, but LNG and GTL offer exposure to the oil price and can deliver higher margins," he told PNN today.

"Coal seam gas suits small-scale LNG for road transport because it is widely distributed and is often near major roads and transport hubs.

“We believe that the demand for LNG has the potential to support significant growth. We also believe that there is an untapped opportunity for LNG in the Australian and Asian markets”.

Liquegas is part of Norway based-oil technology and services group, AGR Group.