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Korea Gas Corp. (036460.SE), or Kogas, is nearing a multibillion natural gas deal with Santos Ltd. (STO.AU), delivering the latest vote of confidence in Australia's fledgling coal seam gas industry.

South Korea's government said an agreement will be signed Friday, clarifying earlier confusion over the status of negotiations after Santos told the Australian Securities Exchange that a definitive deal wasn't yet in place.

"Kogas will sign a final contract at 9:00am (0000 GMT) tomorrow morning in Seoul. It is a done deal," an official from South Korea's Ministry of Knowledge Economy said by phone Thursday.

The agreement is for a 20-year contract to buy 3.5 million metric tons a year of liquefied natural gas from Australia's Gladstone LNG project starting from 2015 to help support domestic energy demand, the South Korean government said.

Kogas has also agreed to buy 15% of the Gladstone LNG project, estimated by analysts to cost around A$15 billion to build, it added.

Santos owns 45% of Gladstone LNG, to be built in Australia's Queensland state. Malaysia's Petroliam Nasional Bhd., or Petronas, owns 35% and France's Total S.A. (TOT) owns 20%.

It is not clear what company Kogas will buy its stake from. Santos has indicated it will consider selling more of its holding but Chief Executive David Knox said in August that "we'll always remain the largest shareholder in the project".

This would indicate that Kogas may take some project equity from Petronas as well as Santos.

Total in September paid about US$800 million for its 20% stake, of which a 15% interest was bought from Santos and 5% from Petronas.

The purchase price marked a discount to the US$2 billion that Petronas paid for its initial 40% stake in May 2008, although that deal was done at the top of the market in a month when oil was trading at up to US$135 a barrel.

About a dozen LNG terminals are slated for construction by 2018 in Australia, which is on the doorstep of fuel-hungry developing Asian economies that want to cut emissions by burning less coal. LNG is natural gas chilled to liquid so it can be shipped by tanker to places not connected by pipeline.

Four of the projects, including the Santos-operated joint venture, are aimed at turning coal seam gas--an unconventional fuel--into LNG for shipment from the Queensland port of Gladstone.

A rival project by BG Group Plc (BG.LN) in October became the first to make a final investment decision and Santos wants to sanction its venture by the end of the month.

Santos has already agreed to sell LNG to partners Petronas and Total but a sale to Kogas would boost its project's credibility by providing validation from an external party.

BG Group has already agreed to sell LNG from its project to China National Offshore Oil Corp. and Tokyo Gas Co. (TKGSY).

Royal Dutch Shell Plc (RDSB.LN) recently welcomed PetroChina Co. (PTR) as a joint equity holder and LNG buyer for its rival development. The fourth venture, between ConocoPhillips (COP) and Origin Energy Ltd. (ORG.AU), has yet to find a customer.

The size of any selldown in Gladstone LNG by Santos may reduce its need to issue equity to fund its share of development costs. Santos raised A$3 billion from a share issue in 2009 and recently issued hybrids in Europe. Analysts have said it will need to raise at least another A$1 billion to cover LNG development costs.

The planned 3.5 million ton LNG sale to Kogas would account for 11% of the country's annual LNG consumption, South Korea's Ministry of Knowledge Economy said in the statement.

Santos shares added 2.9% Thursday compared with a 0.3% rise in the broader market in anticipation of a deal.

-By Ross Kelly and Kyong-Ae Choi, Dow Jones Newswires; 822-3700-1903; kyong-ae.choi@dowjones.com

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