The project will be managed out of Darwin, and is based on Bayu-Undan gas reserves (3.4 trillion cubic feet) in the Timor Sea joint development area between East Timor (90%) and Australia (10%).

The commitment is the second stage of the project following the $2.7 billion already invested by the partners on the liquids stripping project, which starts production early next year.

The combined value of gas and liquid exports is now expected to be more than $30 billion over the next 20 years, of which $6 billion would go to East Timor.

For the Northern Territory the agreement comes on the back of last week's Woodside announcement to spend $1 billion developing the Blacktip gasfield in the Bonaparte Gulf and plans by Alcan to spend $1.5 billion expanding production at the Gove alumina refinery.

Santos Managing Director, John Ellice-Flint, estimated the combined liquids stripping and LNG projects would add more than six million barrels of annual oil equivalent to the group's output when it reached its peak.

Roughly equal to 10% of the group's 2002 production effort. It will also add 46 million barrels of oil equivalent to the group's proven reserves.

It is not known whether the pipeline contract for the project has been awarded yet. Multiplex won the rights for the first incarnation of the project before all contracts were scrapped during negotiations over the complex international fiscal arrangements with East Timor.

ConocoPhillips will sell a participating interest in the Bayu-Undan upstream development currently equivalent to a 10.08% unitised interest to TEPCO and TG. Under an equity realignment agreement Santos will sell a 1.19% interest, resulting in an ongoing holding of 10.64%.

Bayu-Undan is in 80 metres of water about 250 km south of Suai in East Timor and 500 km north-west of Darwin. Apart from its gas reserves, the 1995 discovery also ranks as one of the biggest liquids discoveries in the region at 400 million barrels of condensate (light oil) and LPG.

Current ownership is ConocoPhillips of the US (operator, with 64.14%), AGIP of Italy (12.32%), Santos (11.83%) and Japan's INPEX (11.71%).

The LNG project is underpinned by a sales agreement with Tokyo Electric Power and Toyko Gas for the annual delivery of three million tonnes of LNG for 17 years, starting early in 2006.