APA is getting in ahead of its rivals at the ground floor with LCE as it has with Armour Energy in the hopes of establishing itself in key regions where unconventional gas may be produced.

In 2013 APA signed a heads of agreement with Armour to facilitate the transportation of gas from Armour’s north Australian gas projects in the Nicholson Basin, about 350km north of Mount Isa, to eastern Australia

The LCE option could take the junior company's plans for underground coal gasification in South Australia's Leigh Creek coal field and link them with an interconnector to the east coast gas markets.

Having APA on board dramatically expands LCE's reach, if it can establish commercial flow rates safely.

APA will start work on identifying the most likely route for the interconnection pipeline, the costs of any such pipeline, the gas storage potential at Leigh Creek and other infrastructure opportunities including power generation.

The coal-fired power stations at Leigh Creek in central SA are in the process of being decommissioned.

LCE said the agreement with APA will last for between six months and two years, sufficient time to establish a flow rate and de-risk commercial resource.

“This agreement represents a major milestone,” the company said this morning.

“The studies to be completed under this HOA constitute the first stage of the development of the pipeline required to bring gas to market.

“That market is the supply constrained eastern Australian gas market including the LNG facilities at Gladstone. Working with APA on this project is an affirmation of Leigh Creek's commitment to working with tier one partners.”

The company aims to establish gas flows to surface next year and commence commercial production in 2019.

The potential for gas storage, though not quantified, is a previously overlooked potential value adding opportunity, and could support new gas-fired peaking power generation nearby.

“The recent $1.78 billion purchase of the Iona 27 petajoule gas storage facility located in Victoria by Queensland Investment Corporation from Energy Australia has highlighted the potential financial benefit of this opportunity,” LCE said.

APA had been bidding for Iona, but faced competition concerns.

Gas storage at the LCE project has the potential to provide additional insurance over South Australia’s energy security as gas can be dispatched from storage in the event that the Victorian interconnect is not operating on a day when wind generation falls short.

The interconnector failed last month causing widespread blackouts.

LCE also has agreements with AET Investments and Archer Exploration to develop a chemical/fertiliser facility and a magnesia project respectively.

“Beyond the obvious operational progress, we are excited to be working with Australia’s largest natural gas infrastructure operator on how to best bring our gas to market and provide an additional source of gas to the supply constrained east coast gas market,” LCE chairman Justyn Peters said.

The company is hoping to obtain certification for its gas in coal resource before the end of the year.

APA owns and operates a 7000km natural gas pipeline network in eastern Australia delivering gas to all major cities and towns.