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Australia Signs Mammoth Gas Deal With China

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Australian officials say a $54 billion deal to sell liquefied natural gas to China shows that trade between the two countries remains on track. There had been concerns that tensions over China's arrest of executives of the Australian mining company Rio Tinto could derail relations. Phil Mercer reports from Sydney.

Canberra says the liquefied natural gas deal is proof that its economic relationship with China has not been damaged by the trial in Shanghai this week of Australian Rio Tinto executive Stern Hu.

Hu and three Chinese colleagues have been charged with briber and commercial spying. Their trial has ended but no verdicts have been handed down.

The arrest of the Rio Tinto employees created diplomatic friction between Canberra and Beijing.

However, Australian Resources and Energy Minister Martin Ferguson says the new LNG deal with China National Offshore Oil Corporation (CNOOC) shows that business ties have not been harmed.

"It's very clear that right through the difficulties over Stern Hu we have maintained a healthy business relationship with China that has been mutually beneficial to both countries. And the contract with CNOOC (China National Offshore Oil Corporation) a major player on the west coast of Australia, is also of significance because it now brings them to the east coast of Australia and it says loud and clear that from an energy and a resource point of view, Australia's very important to China's future economic development," said Ferguson.

The agreement is Australia's second major gas deal with the Chinese in six months.  

The project will supply 72 million tons of LNG over 20 years. The gas is extracted from coal seams in central Queensland.

Queensland's state premier, Anna Bligh, says the LNG project will create up to 9,500 jobs.

The project is due to start in 2014, but must meet strict foreign investment and environmental regulations first.

China is Australia's biggest trading partner thanks mainly to its strong demand for iron ore, coal and liquefied natural gas. Exports to China helped Australia escape the worst effects of the global economic meltdown over the past two years.  

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