MELBOURNE (Reuters) - Royal Dutch Shell <RDSa.L> and PetroChina <601857.SS> have taken a big step towards a long awaited gas development in Australia, signing a 27-year deal to supply Shell's Queensland Curtis Liquefied Natural Gas (QCLNG) project.
The deal would bring to market about 5 trillion cubic feet of gas held by Shell and PetroChina's Arrow Energy in the state of Queensland, Arrow said.
Arrow's Surat Basin gas is among the biggest undeveloped resources in eastern Australia but the project has been stuck on the drawing board since getting state and federal approvals in 2013 due to high costs and weak gas prices.
The economics have improved over the past two years as local prices have soared following the start-up of three LNG plants in Queensland, including QCLNG. At the same time, demand for gas has jumped for power plants in eastern Australia.
Arrow is expected to make a final decision in 2018 on whether to go ahead with the development of its coal seam gas in the Surat Basin for the deal with QCLNG, boosting supply in Queensland by around 16 percent over current levels.
"Collaboration will accelerate first gas production to approximately 2020, bringing an additional 240 petajoules per year ... of gas to the Queensland market at peak production," Arrow Energy CEO Qian Mingyang said in a statement.
Supplying QCLNG will help make the development more profitable, Shell said.
"QCLNG's existing connection points with the gas market would enable Arrow to reduce development cost, making projects investable despite challenging market conditions," Shell Australia Chairman Zoe Yujnovich said in a statement.
QCLNG is co-owned by Shell, China's CNOOC <0883.HK> and Tokyo Gas <9531.T>.
(Reporting by Sonali Paul; editing by Richard Pullin)