The move follows a similar announcement by Arrow Energy in May that it has agreed to supply CSM into a smaller 1 million tonne facility, also proposed for Gladstone.

Santos estimated its $5-7 billion project, which today received the backing of Queensland Premier Peter Beattie, would produce $1 billion per year in exports.

It said the announcement followed extensive feasibility and site selection studies over the past 18 months, culminating in an agreement with the Port of Gladstone Authority for Santos to secure a site to construct a LNG export facility on Curtis Island.

Santos managing director John Ellice-Flint said the “landmark project” would underwrite the continued growth of Queensland’s CSM industry and was a major step forward in the development of a new export industry for the state.

“Gladstone LNG is a natural extension of Santos’ core gas business, in line with our strength as Australia’s largest producer of domestic natural gas, including coal seam gas,” Ellice-Flint said.

“Santos is committed to building a diverse LNG supply portfolio, as demonstrated by Darwin LNG, our strong support for a PNG LNG project and now Gladstone LNG.”

He added that Santos holds more than 5000 petajoules of CSM gas reserves and contingent resources, with significant upside potential, in Queensland.

This deal would see Santos supply 170-220PJ of gas from its Surat and Bowen Basin CSM holdings.

Premier Beattie said the project would employ 3000 people during construction and sustain 200 jobs once in operation.

“The potential is enormous, with Santos keen to utilise Queensland’s vast reserves of coal seam gas from both the Bowen Basin and the Surat Basin before piping it to Gladstone and then liquefying it for export by ship,” he said.

Santos expects to make a final investment decision by the end of 2009, with first LNG cargoes flagged for early 2014.