Under the agreement, China National Offshore Oil Corporation (CNOOC) will buy 3.6 million tonnes of LNG a year for two decades from the British energy company's proposed export terminal in Queensland state.

BG chief executive Frank Chapman said in Beijing the deal was estimated to be worth about 40 billion dollars, "which gives you some idea of the very large scale of the venture."

Australian resources minister Martin Ferguson, in Beijing for the signing ceremony, said the deal was the biggest LNG contract in volume terms signed between two companies in Australia's history.

"This deal makes Australia the world leader in the coal seam gas-based LNG industry and it brings us one important step closer to opening up a new LNG province on Australia's east coast in Queensland," he said in a statement.

BG said a final investment decision on the LNG facility in Gladstone would be made later this year.

"I think this deal represents a landmark development in our relationship and will build up on what is already a close and productive partnership," Chapman told a news conference.

BG plans to process the LNG at its proposed facility in Gladstone, Queensland, which will be fed by coal seam gas sourced from the state's Surat Basin and operated by the British company's Australian subsidiary QGC.

The facility is expected to start operating in 2014.

CNOOC will buy five percent of BG's interests in certain coal seam gas tenements in the Surat Basin and a 10-percent stake in one of the two LNG processing trains at Gladstone.

The two companies also will set up a joint venture to build two ships in China that will transport the LNG to the Asian nation, CNOOC said.

The deal will "deepen the long-term cooperation between us and the Australian government in the energy sector and... further expand the scope of our cooperation," CNOOC president Fu Chengyu told the news conference.

LNG is produced by cooling natural gas into liquid form so that it can be easily stored and transported. It is popular partly because it is more clean-burning than other fossil resources.

The announcement cements a preliminary deal signed nearly a year ago -- but it still needs regulatory approval from the Chinese, Australian and Queensland governments.

The deal signals increasingly close trade ties between Australia and China, despite a series of political spats over the past year and this week's trial of four Rio Tinto executives in Shanghai.

In August, Australia signed a record 41.3 billion dollar deal with PetroChina to supply 2.25 million tonnes of LNG a year over two decades from ExxonMobil's share of the still-undeveloped Gorgon field off the country's west.

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