Under a binding heads of agreement with GLNG, Petronas agreed to buy 2 million tonnes of LNG per annum for 20 years with an option for an additional 1MMtpa if Santos elects to sell it to them.

The agreement is conditional only on GLNG reaching a final investment decision.

Petronas, the world's third-largest LNG producer, will use the gas for the Malaysian domestic market.

"Today's agreement underpins the volumes for the first train of the GLNG project and we remain on schedule for first shipments of LNG in 2014," Santos managing director David Knox said.

In a teleconference today he said that while he could not reveal the details of the commercial terms, they were very competitive with industry practice for long-term contracts and represented "an absolutely fantastic outcome for GLNG".

"They recognise that there are other buyers out there that are also seeking to purchase from us, so what they decided to do was get their foot on the gas early and do it in a big way. This is very much an arm's length deal and it's at a very completive price," Knox added.

He also said that the deal provided a strong foundation for FID in the first half of 2010.

"We have the upstream reserves, we have the pipeline route, we know how to put it all together, we have a water management solution and we now have a foundation customer that is going to underpin the first train."

He also confirmed that Santos was still in discussions with other buyers and was prepared to sell its equity stake if the buyers were so inclined.

"We are continuing our discussions with other parties. We have the option to sell 1 million tonnes per annum by Christmas time and we have a further 0.5 million tonnes per annum available for other customers.

"So basically we have a period of six months of hard marketing to sell the remainder of the volumes."

South Korea's Korea Gas Corporation had said earlier this month that it was interested in LNG from the Gladstone project but had met with reluctance from Santos about securing an equity stake in GLNG.

Knox added in a statement that the project would create thousands of jobs in regional Queensland and bring long-term benefits to the communities in which the company was working.

The EIS is expected to be advertised for public release by the Queensland coordinator general on June 20.

Santos is working with Petronas on GLNG, which will use coal seam gas as feedstock for an initial 3.5 million tonne per annum LNG plant on Curtis Island.

Petronas holds a 40% stake in GLNG.