Petronas will make an initial cash investment of around $2 billion, plus a further payment of $500 million upon reaching a final investment decision for a second liquefied natural gas (LNG) train.

The Gladstone LNG (GLNG) agreement with Petronas reportedly establishes a new benchmark for the value of eastern Australian gas resources and represents a major step towards realization of Santos’s coal seam gas (CSG) to LNG strategy. The transaction sells a third of Santos’s CSG proven plus probable reserves (2P) and less than 11% of the Australian company’s total 2P oil and gas reserves.

The agreement reportedly aligns the interests of both companies across all strategic elements of the value chain from resources to plant development and operation, and LNG marketing. CSG resources will be drawn from Santos’s Greater Fairview and Roma fields with Santos remaining the upstream operator.

According to the agreement, Santos and Petronas will form a 60-40 joint venture company to develop and operate the 450km gas pipeline to Gladstone; develop and operate the LNG liquefaction plant on Curtis Island at Gladstone with an initial capacity of three million tonnes per annum.

Technical expertise will be provided by Petronas and the joint venture will undertake all marketing activity, accessing Petronas’s established customer base in the three largest Asian LNG markets of Japan, Korea and Taiwan.