In a statement today, Arrow said it had signed a heads of agreement with LNG Ltd and its affiliate Golar LNG regarding an initial 1 million tonne per annum LNG train.

This follows a similar, though smaller agreement last month, in which Arrow agreed to supply 2PJ of gas per annum from its Daandine CSM field to a proposed LNG plant operated by Liquegas Energy.

Chief executive Nick Davies described the latest deal as the “breakthrough” his company had been working towards for the past 15 months.

“Our strategy has been to seek a viable export project for our gas from the east coast of Australia that would give us exposure to oil pricing and to help us to break out of the low gas price environment in the eastern Australian states caused by the wide availability of coal,” he said.

“The merger with CH4 Gas Limited, the investment and farm-in to Pure Energy and the funding deal with EIG were all designed to get us a critical mass of reserve certification options aimed at supplying the Port of Gladstone so that we could export gas as either LNG, compressed natural gas or gas-to-liquids.”

Under the deal, Arrow would initially supply 55PJ to the terminal for 12 years after 2010.

It has an option to supply a further 55PJ per year, starting as early as mid-2011, subject to a second LNG plant being developed.

Arrow also has the option to aggregate the gas supply from multiple sources, including joint venture parties, which it said would underpin the development of its Bowen Basin, coastal Queensland and JV coal seam gas holdings, along with associated pipeline infrastructure.

The company is currently finalising its 2007-08 exploration and appraisal programs, targeting 150PJ of net 2P reserves.

Of this, Arrow hopes to achieve 1100PJ of un-contracted reserves that would be “more than adequate” to supply the Gladstone LNG project.

LNG Ltd managing director Maurice Brand said the CSM industry had matured to the point where it was now a viable option for mid-scale LNG projects.

"The work undertaken to date and application of modular construction techniques and minimization of on-site construction will enable the Gladstone LNG project to be completed on a competitive cost basis and within 30 months from financial close," he said.

"Furthermore, due to the company’s low development cost, funding for a mid-scale LNG project based on CSG is achievable.”

Financial close for the LNG terminal project is targeted for September 2008 with a development timeline to allow first LNG deliveries in late 2010.

Discussions are currently underway with relevant authorities regarding a likely facility location.