May 15 (Bloomberg) -- Santos Ltd., Australia’s third- biggest oil and gas producer, said its proposed A$7.7 billion ($5.9 billion) Gladstone liquefied natural gas project in Queensland state remains ahead of rival ventures.

“There is no question in my mind that we are still the frontrunners,” Rick Wilkinson, president of Gladstone LNG and Santos’s Queensland assets, told reporters today. Santos submitted a draft environmental report to the state government and has completed a number of heritage surveys, Wilkinson said.

The Gladstone LNG venture, in which Malaysia’s Petroliam Nasional Bhd. has a 40 percent stake, is one of the four most- advanced projects planning to convert gas extracted from coal seams for export to Asia. Australia’s coal-seam gas industry attracted about $22 billion in investment last year and BG Group Plc and ConocoPhillips are among companies with stakes in rival ventures aiming to turn coal seam gas in Queensland into LNG.

Queensland may export about 20 million metric tons a year of LNG by 2020, equal to Australia’s total existing output, according to Brisbane-based Bow Energy Ltd. BG signed a contract this month to supply LNG to China National Offshore Oil Corp. from Queensland.

The Gladstone LNG partners are “on track” to make a final investment decision for the project in the first half of next year, Santos Chief Executive Officer David Knox said May 6.

Environmental Report

Santos’s draft impact statement is expected to go for public consultation in a “matter of weeks” and the company is targeting environmental approvals by the end of the year, Wilkinson said.

“No significant issues have been raised” about the environmental report, Wilkinson said.

Santos and Petroliam Nasional submitted a draft environmental report on their Gladstone LNG project during the first quarter. BG will submit a draft environmental report on its project to the state government “in the coming weeks,” Hedley Thomas, a spokesman for BG in Australia, said May 13.

With Chevron Corp.’s Gorgon project in Western Australia and Exxon Mobil Corp.’s project in Papua New Guinea likely to sell about 21 million tons a year between them, there may be scope for just one other project to be approved in that timeframe, JPMorgan Chase & Co. said in a March 12 report.

China Purchases

China National will buy 3.6 million tons annually from BG’s Gladstone LNG project for 20 years, the companies said May 13. The Exxon-led venture recently signed its first non-binding sales accord with a “major Asian customer” for the purchase of 2 million tons a year.

The agreement between BG and China National gives the coal- seam gas to LNG process credibility because it shows that there are buyers in the market for the product, Wilkinson said.

Coal-seam gas is mostly methane found on the surface of coal. The gas can be extracted when pressure on the seams is reduced, usually by removing water.

Santos is now under “added pressure” to secure a contract and reach final investment decision after the BG deal, Oswald Clint, a London-based analyst at Sanford C. Bernstein & Co., said in a May 13 note to clients. Santos may sell up to 9 percent of Gladstone LNG as part of a fuel-sale agreement, Wilkinson said.

Santos may sell a further minority interest in the Gladstone venture in combination with a fuel-sales contract, the company said May 11. Marketing discussions with a range of Asian LNG buyers are at an advanced stage, Wilkinson said.

To contact the reporter on this story: Ben Sharples in Melbourne bsharples@bloomberg.net

Last Updated: May 15, 2009 01:52 EDT