The finding follows the signing of a heads of agreement between the two companies, in which Arrow agreed to supply about 55 petajoules of gas per year from its coal seam methane operations to the facility proposed for Gladstone Port.

In a letter to the market, LNG Ltd managing director Maurice Brand said the pre-feasibility study estimated a 1Mmtpa facility would cost about $US350 million ($A407 million).

“The capital cost estimate was considered too low by some industry observers; however these comments failed to take into consideration four fundamental factors,” he said.

Firstly, the company is proposing to build the LNG plant at the established Fisherman’s Landing site in the Port of Gladstone, a much cheaper option compared to an undeveloped greenfield site.

Secondly, LNG Ltd said it had been working with Arup Energy for the past three years on using all-concrete LNG storage tanks.

“All concrete tanks are not new in the LNG industry and can be built at a lower capital cost and faster construction schedule compared to nickel steel tanks,” Brand said.

Thirdly, the company plans to use its own ammonia absorption-mixed refrigerant process, for which a provisional patent application has been lodged.

Lastly, the Gladstone LNG Project pre-feasibility and development schedule has benefited from work already done on LNG Ltd’s other small-scale LNG projects.

Next month, the company plans to start a detailed feasibility study to allow it to achieve financial close by this time next year.

Under the partnership, 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.