Under the 22-year deal, Singapore's Sembawang Gas (SembGas), a unit of Sembawang Corporation, would import 325 million standard cubic feet per day of natural gas through a 640-km (400 mile) pipeline from the gas field in the South China Sea to the city state's Jurong island.

The first delivery of the gas to Singapore is expected in 2001.Indonesia's mines and energy minister Kuntoro Mangkusubroto said the accord was a significant milestone for Indonesia in the current difficult economic climate.

"We estimate Indonesia will earn about $4.0 billion from the gas exports to Singapore. We expect the foreign exchange earnings will help us get out of the economic crisis," he said. Indonesia is experiencing its worst economic crisis in decades and its currency, the rupiah, has lost more than80 per cent of its value to the US dollar since July last year.

Philip Yeo, chairman of Singapore's Economic Development Board, said the city state might import more natural gas from Indonesia as it increasingly uses gas in place of heavy fuel oil to drive its power stations.

"Basically, today we have about 6,000 megawatts (MW) of electricity, and of the 6,000 MW we use, about 90 pct is powered by heavy fuel. So there is a big potential for us to convert to gas," said Yeo told reporters after the signing of the initial agreement between Indonesia's state oil company Pertamina and SembGas.

"The difficulty is the distance ... so this pipeline is important. If we succeed and the quantity is there, we think we can import more," Yeo said.

"Malaysia is easy because (gas) comes by land (to Singapore) and the supply is there, but the quantity is limited. Indonesia has more potential. As you know, Natuna has big potential," he said.

State-owned Singapore Power buys 150 million standard cubic feet of naturalgas per day from Malaysia.

The West Natuna field is partly owned by Conoco Inc, a subsidiary of US Chemicals maker Du Pont. The fields are operated by Conoco, Gulf Resources Ltd and Premier Oil Natuna Sea Ltd under production sharing contracts (PSC).

A Pertamina spokesman said there were still some issues to be resolved between Pertamina, the production sharing contractors and the buyer following the sales agreement with SembGas.