Sydney (Platts)--7Feb2011/602 am EST/1102 GMT

Australian coalseam gas company Eastern Star Gas has launched the front-end engineering and design phase for its proposed LNG project in the east coast city of Newcastle, the company said in a statement Monday.

ESG's Japanese partners Hitachi and Toyo Engineering have been appointed to undertake the FEED work for the LNG Newcastle project, and will be supported by technology provider Chart Energy & Chemicals.

ESG has also appointed AMEC, in association with Zetkin, MWH and Unidel, to conduct a feasibility study and review options for the development of the Narrabri coalseam gas fields to supply the LNGN project. The review is to be followed immediately by FEED of the selected options for Narrabri, which is owned 65% by ESG and 35% by Santos, Australia's third-biggest upstream player.

In parallel with FEED for the upstream and LNGN projects, ESG plans to progress government approvals processes, port access arrangements, domestic and LNG marketing activities and project commercial arrangements, including project ownership and financing, the company said. The project's LNG customers are also expected to take equity in the development.

"With FEED completion expected in the fourth quarter and subject to federal environmental approvals, final investment decision would be possible by the first quarter of 2012 with potential for domestic gas supply by 2014 and first export of LNG by 2015," ESG said.

The launch of the work is a "significant milestone," taking the company closer to creating a major new industry for the eastern Australian state of New South Wales, according to ESG Managing Director David Casey. "The upstream feasibility and FEED work will position us to develop the Narrabri CSG project to supply gas at rates that will make NSW self-sufficient in terms of gas supply," he added.

The first phase of the LNGN project will comprise two 500,000 mt/year LNG production trains, using electric motor driven, mid-scale technology, on Kooragang Island in Newcastle. The site is expected to be able to accommodate a facility producing 4 million mt/year as gas reserves and markets grow.

"Not only is the capital cost of the LNG Newcastle project expected to be well below that achievable for larger-scale developments, the use of inverter controlled electric motor drives should make the process more reliable, flexible and efficient," Casey added.

ESG Chairman John Anderson has previously said that capital expenditure on gas production activities would top A$1 billion ($1 billion) over the life of the Newcastle LNG project. Another A$1 billion is expected to be spent on construction of the first-stage plant, with around A$500 million to go toward pipeline infrastructure.

The Narrabri coalseam gas fields in the Gunnedah Basin had proved and probable gas reserves of 1,520 petajoules at the end of 2009, but further upgrades are expected this year through an ongoing corehole program and production from multi-lateral production pilots.

The Gunnedah Basin is the most lightly explored portion of the Bowen-Gunnedah-Sydney Basin complex which currently supplies a large proportion of Australia's coalseam gas production. The Bowen Basin portion of the complex in Queensland is expected to provide coalseam gas for a total of five LNG plants currently at various stages of development in the port city of Gladstone, including one led by ESG's Narrabri partner Santos.

--Christine Forster, christine_forster@platts.com

Similar stories appear in International Gas Report. See more information at http://bit.ly/InternationalGasReport