Under a conditional agreement, the PNG Gas Project participants will sell 43.5 petajoules per year of gas for 20 years to the Alcan Gove alumina refinery.

First deliveries are expected in 2009. Until then the refinery will continue to depend on imported fuel.

Alcan and the Blacktip joint venturers agreed in November 2004 on the sale and purchase of 800PJ of gas from the Blacktip field in the offshore Bonaparte Gulf over about 20 years from 2007.

But Alcan ditched Blacktip in the wake of attempts by Woodside and Eni to increase their price by close to 30%.

Blacktip was to be approved for development by the end of June, but it will need a confirmed customer in order to go ahead.

Woodside has said it would examine other options for developing the field, but some pundits are saying its 900 billion cubic feet reserves are not enough to justify the high costs of developing an offshore field. Whatever the case, the field cannot go ahead until at least one major new customer has been found.

The termination of the contract has also created doubt over the future of the 940-kilometre Trans Territory Pipeline.

Under the agreement between Alcan and the Blacktip JV, gas was to have been piped to Gove, in the Gulf of Carpentaria, from the west. But a pipeline intended to connect to the planned PNG-to-Brisbane pipeline would run east, making the original pipeline unnecessary.

In March, an Australian Pipeline Trust-ANZ Banking Group consortium was named preferred bidder to build, own and operate the Trans-Territory pipeline. Their work and expenditure to date may have been for nothing.

The Northern Territory economy and government would also lose valuable infrastructure and spending to Queensland, a fact of which Queensland minister for state development Tony McGrady is well aware.

"This is a significant step towards enabling the proponents of the PNG gas pipeline to green light the project when they make a decision early next year," McGrady said yesterday.

"It's the sort of substantial, long-term contract that helps bring this project a step closer. If the decision is made next year to go ahead with PNG Gas Pipeline then this multi-billion dollar project will provide a major boost to industry in Queensland and open up new and exciting opportunities in the regions."

The other winners are the PNG Gas project partners and the APC consortium (AGL-Petronas Consortium, comprising Australian Gas Light and Petronas Australia) which will build, own and operate the pipeline, which is now in the front-end engineering and design stage.

APC yesterday welcomed the news of the Alcan agreement.

“As a result of the new agreement with Alcan, APC will work with the PNG Gas Project participants on addressing the requirements for a lateral extension of the pipeline to the Northern Territory to supply Gove,” AGL managing director Greg Martin said.

Analysts agree that servicing Alcan would entail running a branch pipeline from somewhere near Weipa in far north Queensland across the Gulf of Carpentaria to Gove.

Oil Search and its partners in the PNG Gas project also had plenty to smile about.

“Oil Search is delighted that Alcan has committed to purchase substantial volumes of gas from the PNG Gas Project,” managing director Peter Botten said.

“This agreement vindicates our belief that the move into front-end engineering and design would help to crystallise new gas sales.

"With intensive discussions continuing with a number of other potential customers, significant progress is being made towards enabling a project sanction decision following the completion of FEED”.

But the PNG-to-Brisbane pipeline is still not a done deal.

Alcan's agreement to buy 43.5PJ a year covers more than 20% of the annual sales the PNG Gas project needs.

It is possible the pipeline could be viable with 150PJ of annaul sales, but Botten has said the partners need 200PJ to be comfortable. Various reports indicate that conditional sales agreements now account for somewhere between 100 and 170PJ.

APC will decide on its final investment at the end of the FEED program at the end of the year.

The decision depends on the PNG Gas Project participants getting sufficient sale agreements and APC concluding the corresponding gas transportation arrangements, Martin said.

PNG Gas project participants include Oil Search (operator) 54.2%, Exxon Mobil 39.4%, MRDC-PNG Government 3% and Nippon Oil 3.4%.