"We are seriously talking. But the situation in Japan is very messy right now. At this moment LNG is in over-supply situation with lots of projects," he said in an interview.

Mitsui Australia is a unit of giant trading house Mitsui and Co Ltd.

Kitahara, head of Australia's biggest foreign company and its second-largest exporter after The Broken Hill Pty Co Ltd, said he was still confident the big gas expansion would go ahead.

"I believe so," Kitahara said when asked if the Northwest Shelf would get the contracts to allow it to expand.

But serious economic downturn in Asia was likely to cause delays from the 2003-2004 target for expanded shipments to begin, he said.

The official target date was being kept in place untilnegotiations clarified matters, he said. Kitahara saw delays in terms of years than a more protracted period.

Kitahara said he did not favour a "soft landing" option of only the first of two new LNG trains going ahead.

"Certainly we would like to have both (trains)," he said.

There was no hope that an original timetable for an end to export contract negotiations by the end of this year would be met, he said, adding: "Only one month left."

He would not comment on how long delays might be.

Many industries had to be brought into consensus in Japan, where the volatile situation was slowing agreement, he said.

Kitahara said it would be "difficult" for the Northwest Shelf expansion and the rival A$10 billion Gorgon gas development to both go ahead.

Sharing of infrastructure may create a more viable project, "but (the) market is not big enough to take two projects at the same time," he said.

Kitahara believes that the Northwest Shelf project will go first.

The Northwest Shelf project produces 7.5million tonnes of LNG a year. Its expansion programme calls for a doubling of production, initially all for Japan but with negotiations now covering other possible markets.

The project is an equal joint venture between Woodside Petroleum Ltd, Chevron Corp, Royal Dutch/Shell Group, BHP, British Petroleum Co Plc and Japan Australia (MiMi) LNG, an equal joint venture between Mitsui and Mitsubishi Corp.

Partners in Gorgon are units of Chevron, Texaco Inc, Mobil Corp and Shell.