The Queensland Hunter Gas Pipeline venture said Friday it still intends to build an A$850 million pipeline to Newcastle in News South Wales state despite a decision by BG Group Plc (BG.LN) not to proceed with the construction of a power generator in the port city.

QHGP is a joint venture between four private investors and ANZ Infrastructure Services Ltd.

In May last year, it signed an agreement with Queensland Gas Company Ltd. to transport 50 petajoules of gas each year for 20 years from Queensland state 820 kilometers south to the now-shelved Hunter Power Station.

BG Group completed a full takeover of QGC late last year and decided not to proceed with construction of the A$750 million facility after a feasibility study was completed in December.

"Obviously having QGC, or now BG, pull out was a big disappointment for us," QHGP Managing Director Bob Otjen said in a telephone interview.

"But the need for clean electrical generation in the Hunter Valley hasn't gone away and there are a number of other parties that we're talking to and have always been talking to about moving gas for them."

Otjen said construction on the pipeline is due to start in 2010 with first gas still planned for 2011.

By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; ross.kelly@dowjones.com

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