Royal Dutch Shell Plc agreed to sell liquefied natural gas to PetroChina Co. from the delayed $10 billion-plus Gorgon project in Australia, the first China sales accord for the venture since an earlier deal expired in 2005.

The agreement is for the sale of 1 million metric tons a year of LNG over 20 years, Shell's Australian unit said today in a statement. The Chevron Corp.-led Gorgon project may be sanctioned next year and may be 50 percent bigger than first planned, said Tony Hanna, vice president for Asia Pacific at Shell Gas & Power International.

The Gorgon partners, which include Exxon Mobil Corp., last year dropped a 2006 deadline for approving the project and haven't given a revised timetable as they work to address rising construction costs. They have spent more than A$1 billion ($826 million) since the first of the gas fields, holding a quarter of the nation's undeveloped gas resources, was found in 1980.

``This is a good sign from Shell; if they are still talking to the market and they've done a deal they must expect that something is going to happen pretty soon,'' said Russell Williams, a director at RISC Pty, a resources consulting firm in Perth. ``Obviously the original schedule is well and truly blown.''

The accord with PetroChina, Asia's biggest oil company by market value, is conditional on the Gorgon project, now set to have a capacity of 15 million metric tons a year, going ahead. It's too early to say when deliveries may start, Shell said today.

Japan, Korea

San Ramon, California-based Chevron, which owns 50 percent of Gorgon and is the project operator, has sale agreements for 4.45 million tons a year of LNG to four companies: Tokyo Gas Co., Chubu Electric Power Co., Osaka Gas Co. and GS Caltex Corp. in South Korea. It said in May it would sell the rest of its share to ``markets such as North America.''

Chevron hasn't confirmed the capacity of the project will be increased from the originally proposed 10 million tons a year.

Shell said in January last year it may supply as much as 500,000 tons a year of Gorgon LNG to Gujarat State Petroleum Corp. in India and has an initial arrangement to sell as much as 2.5 million tons a year to North America. Exxon said in March it's in talks to sell its share of Gorgon LNG to potential buyers in Asia, including Petronet LNG Ltd.

Shell, Europe's biggest oil company, and Exxon Mobil, the world's biggest publicly traded oil company, each own 25 percent of Gorgon.

Rising Cost

The cost of building the project has risen due to increasing labor wages and plant construction expenses and will probably rival Shell's Sakhalin-2 in Russia at about $20 billion, Wall Street Access said in June.

PetroChina plans to build three LNG terminals: in Rudong in Jiangsu province, Dalian in Liaoning and Tangshan in Hebei, with the first due to complete by 2010. It has a 25-year accord to buy 3 million tons a year of LNG from Iran, starting in 2011.

The Gorgon accord will supplement the Middle Eastern supplies rather than replace them, and talks with Middle Eastern suppliers are continuing, Mao Zefeng, PetroChina's Hong Kong- based spokesman, said today in a telephone interview.

``This is big progress for the company,'' he said.

The proposed sale of Gorgon LNG to PetroChina doesn't affect initial agreements Shell already has to sell fuel from the Australian project to an LNG import terminal in northwest Mexico and to India, said Anita Harben, a spokeswoman for Shell in Perth. The terms of the accords are ``flexible,'' allowing all three agreements to proceed, she said.

North West Shelf

PetroChina's smaller competitor China National Offshore Oil Corp. started China's first LNG imports last year, buying fuel from the Woodside Petroleum Ltd.-operated North West Shelf venture, also in Western Australia. China, the world's biggest emitter of greenhouse gases, is increasing use of cleaner-burning fuel such as natural gas to help reduce pollution.

China National Offshore two years ago scrapped an initial agreement to buy about A$25 billion ($21 billion) of LNG from the Gorgon venture because of a disagreement over the price of the fuel. The company has since been buying LNG on the spot market at prices more than double the price it pays to the North West Shelf venture, Chinese customs data show.

Shell said today it's ``very pleased'' with the terms of the PetroChina accord, indicating it was struck at higher prices than the North West Shelf contract.

``China is finally preparing to enter the global LNG business,'' said Fereidun Fesharaki, chief executive officer of Hawaii-based consulting firm FACTS Global Energy Inc. ``It gives the signal that they are prepared to pay the price and it's close to oil-parity price.'' The start-up of deliveries from Gorgon is six to seven years away, he said.

Perth Signing

The accord was signed in Perth by Jon Chadwick, executive vice president, Shell Gas & Power Asia, and Sun Longde, vice president of PetroChina, in the presence of Western Australian Premier Alan Carpenter and Ma Kai, chairman of China's National Development and Reform Commission.

The agreement ``sets a new benchmark for LNG supplies into China and underlines Shell's commitment to Chinese LNG customers and to the Gorgon project,'' Chadwick said.

``That suggests to me pricing terms that reflect the current strong market for LNG and the high prices that are being received as a result of sustained high oil prices,'' said Paul Balfe, a Brisbane-based director at ACIL Consulting Pty, a consulting firm.

Shell won't directly comment on the terms, Harben said.

The Gorgon partners won environmental consent from Western Australia state for the project in December after agreeing to fund as much as A$60 million of conservation programs for the vulnerable flat-back turtle and other wildlife. The plant is due to be built on an island nature reserve about 70 kilometers (44 miles) off the coast.

LNG is natural gas chilled to a liquid form, reducing it to one-six-hundredth of its original volume, for transportation by ship to destinations not connected by pipeline.