Shawn Donnan, Jakarta – BP has completed the relocation of villagers at the future site of its Tangguh liquid natural gas project in the remote Indonesian province of Papua and expects to begin "peak construction" by the end of this year, according to a senior executive.

The Tangguh project is initially expected to include two LNG plants and have an annual capacity of 7m tonnes of LNG when it goes on stream in 2007.

It will become BP's biggest investment in Indonesia and is expected to play a crucial role in maintaining the country's status as the world's largest exporter of LNG.

The new phase of construction comes as BP is working to finalise an agreement to sell 800,000 tonnes a year of LNG to K Power, a joint venture between BP and SK Corp of South Korea.

According to Lukman Ahmad Mahfoedz, senior vice-president of Tangguh LNG, that contract is expected to be signed next month with a separate agreement to sell 3.1m tonnes a year of LNG to US-based Sempra to be finalised by September.

BP earlier this month signed a $1.9bn contract to supply South Korean steel maker Posco with 550,000 tonnes annually. It also has a 25-year deal to sell 2.6m tonnes a year to China's Fujian province.

The signing of the K Power and Sempra deals, Mr Mahfoedz said, will effectively complete the sale of Tangguh's initial capacity.

But BP, which owns 37 per cent of the project, and partners including China's Cnooc are continuing marketing in the hopes of opening a third train (LNG liquification plant). Up to six trains are eventually planned, Mr Mahfoedz said.

The relocation of 127 families living at the project's site to a new village has now been completed, Mr Mahfoedz said. This opened the way for the next phase of the project, with "peak construction" on the two plants due by the fourth quarter of this year. "We have passed a very important milestone," Mr Mahfoedz said.

The Anglo-Australian resource giant faced a series of minor setbacks in building the new village, including being forced to import wood to build traditional homes there to ensure no illegally-felled wood was used in the construction.

BP has sought to market the Tangguh project as an example of how it is meeting new standards of good governance and community engagement at its plants.

Unlike Freeport McMoRan, which has long faced controversy for hiring the Indonesian military to provide security at its massive Grasberg gold and copper mine in Papua, BP has also said it plans to avoid using the military for security.

Indonesia's easternmost province, Papua has suffered a long-running separatist conflict.