Under the deal, Arrow has agreed to supply 60 petajoules of gas from its coal seam methane operations to the facility proposed for Gladstone port for 12 years.

The agreement includes all gas delivery terms, including price formula, take or pay quantities and gas delivery specifications.

Arrow has also finished a pre-feasibility study, which it said confirmed the company could provide sufficient volumes of gas for the project.

Financial close on the project is expected by the end of September, 2008.

LNG Ltd’s managing director Maurice Brand said the pre-feasibililty study estimated a 1Mmtpa facility would cost about $US350 million ($A million).

He said the project was expected to deliver about $500 million in annual sales revenue.

“The Gladstone LNG Project has the potential to accelerate the already rapid pace of growth of the coal seam gas supply in Australia,” Brand said.

Arrow has an option to ultimately supply up to 156 PJ per annum to what could potentially become a 2.6 million tonne per annum LNG plant consisting of two trains.

Arrow said the gas pricing formula agreed for this project achieved its aim of selling gas at prices linked directly to global oil prices and subsequently escaping eastern Australia’s low gas price environment.