“The signing of the HOA (heads of agreement), which replaces the Memorandum of Intent dated the 30 March 2004, is the result of twelve months close collaboration between GMR and the company,” LNG said in a statement yesterday.

It said it was targeting the second quarter this year to finalise the feedstock gas and the LNG production plant location.

“The company is reviewing several gas feedstock alternatives and at this stage favours gas from existing gas discoveries in the Middle East, due to the immediate adequacy of the available gas reserves," LNG said.

“Furthermore, the close proximity of the Middle East to the Port of Mangalore will result in significant benefits in relation to shipping logistics and costs and improve the overall economics of the GMR Project. While gas feedstock was initially being targeted from Tanzania this gas is now being targeted for LNG supply to other closer energy markets.”

The company said while several issues remained to be finalised in order for the project to proceed to development, the HOA is contained all material commercial terms that the company considered needed for achieving financial close of the project during 2005.