June 3 (Bloomberg) -- Unconventional sources of natural gas, such as coal seam and shale, are likely to increase their contribution to supplies of the fuel, said Santos Ltd., Australia's third-biggest oil and gas producer.

These forms of gas make up about a third of the U.S.'s 24.5 trillion cubic feet of annual consumption and will become more important in Asia, David Knox, Acting Chief Executive Officer of Adelaide-based Santos, said today at an investor briefing. Santos may book its first unconventional gas resources this year, said Rick Wilkinson, vice-president of commercial operations.

Gas demand in eastern Australia may more than double in the next decade, driven by the introduction of carbon trading and the start-up of liquefied natural gas export projects in Queensland state, Santos said. Rising consumption will boost prices, said the company, operator of the Cooper Basin project, Australia's biggest onshore source of gas.

``This price increase will drive conventional reserves and unconventional resources growth in the Cooper Basin,'' Wilkinson said at the investor briefing, which was carried by Webcast. ``It's not just a coal seam gas story. We've got a fantastic footprint to take advantage of that.''

The Cooper Basin may hold about 7 trillion cubic feet of unconventional gas, Wilkinson said.

Santos gained 0.9 percent to A$21.92 in Sydney trading and was at A$21.92 at 10:19 a.m. local time, poised for a record close.

LNG Growth

Santos may have stakes in four LNG ventures by 2020, at Gladstone, Queensland state, the ConocoPhillips-operated Darwin plant in northern Australia, the Browse Basin off the northwest coast and at the Exxon Mobil Corp.-operated Papua New Guinea project, the company said in a presentation lodged with the Australian Stock Exchange. The four ventures may provide Santos with net LNG output of as much as 10.3 million tons a year by the end of the next decade, it said.

Santos last week agreed to sell a 40 percent stake in coal seam gas assets and the proposed Gladstone LNG project to Malaysia's Petroliam Nasional Bhd. for $2.51 billion.

The sale, assuming it takes effect Aug. 31, will reduce forecast 2008 output by about 500,000 barrels of oil equivalent, cutting the full-year production target to 55.5-57.5 million barrels, Santos said in the presentation. It will also trim Santos's forecast capital expenditure this year by A$75 million ($72 million) to A$1.425 billion, it said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

Last Updated: June 2, 2008 20:33 EDT