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According to a report from PNG paper, Post-Courier, the deal was signed with state-backed company China National Petroleum Corporation (CNPC) and was described by Avei , as "potentially the most beneficial [agreement] reached between the state and a major overseas corporation since Independence [in 1975]".
"The PNG gas project – gas to Australia – will allow the commercialisation of our vast gas reserves whereas the agreement with CNPC will guarantee there is maximum benefit from gas sector development for the nation," he said.
"It is an historic, trailblazing agreement that confirms Papua New Guinea's special relationship with the Peoples Republic of China – the world's largest country and the economic powerhouse of our region."
The announcement comes a month after Prime Minister Michael Somare revealed he had received a proposal from China National Offshore Oil Corporation (CNOOC) to develop a liquefied natural gas plant in the country.
Under the new deal, the PNG Government and CNPC "will immediately begin exploring cooperation in the downstream processing of our gas resource through LNG and LPG plants in particular – but in other value-adding, processing areas as well," Sir Avei said.
According to the Post-Courier the discussions will focus on a comprehensive feasibility study into the construction of a northern gas pipeline. The potential project was said to also include an integrated methane refinery complex in Mamose to produce LPG and compressed natural gas (CNG).
Minister Avei said the state and CNPC would form a joint working group to begin the implementation of cooperation in downstream processing.
There has been previous speculation that China was interested in establishing an LNG plant on PNG's north coast. A northern pipeline would facilitate this goal.
