ConocoPhillips (COP) has become the first company building a liquefied natural gas project fed by coal seam gas to acknowledge that it probably won't get as much money for its product than a traditional LNG project, analysts at Credit Suisse said Tuesday.

Five separate ventures are planning to make history by converting CSG to LNG for export - a feat that's never been achieved anywhere in the world to date - and they're all trying to pull it off at the port city of Gladstone in Queensland state.

An unconventional source of gas, coal seam gas is around 98% methane and therefore is drier and has a lower heating value than conventional LNG.

Most analysts expect that participating companies will have to offer a discount on their LNG to account for CSG's lower calorific value, especially in Japan, where some utilities have stricter quality control standards.

Executives from companies involved in the projects have consistently played down such concerns despite some analysts estimating they will have to slash the price of their product by about 10%.

Andrew Williams and Jenny Wong, energy analysts at Credit Suisse, said in a client note that Credit Suisse's team of U.S. energy analysts recently met with the president of ConocoPhillips' Australian operation, Joe Marushack.

Credit Suisse said that he indicated that CSG's lower calorific content is likely to impact the price that ConocoPhillips' Gladstone LNG joint venture with Origin Energy Ltd. (ORG.AU) can get for its gas. He said the gas would either be sold as leaner LNG, or sold to customers who will spike it with liquefied petroleum gas to lift its heating value.

"We believe this is the first time a major CSG JV has publicly acknowledged the pricing issue," Williams and Wong said.

A comment from ConocoPhillips and Origin's LNG joint venture, Australia Pacific LNG, wasn't immediately available.

Apart from ConocoPhillips' venture with Origin, other vehicles trying to build LNG plants at Gladstone using CSG include a pairing between Santos Ltd. (STO.AU) and Malaysia's Petroliam Nasional Berhard (PET.YY), and standalone projects from BG Group PLC (BG.LN) and Royal Dutch Shell PLC (RDSB.LN). Liquefied Natural Gas Ltd. (LNG.AU) has a smaller-scale project in the works.

The price they get for their gas is critical to the economics of their developments and important information for investors and analysts trying to calculate likely rates of return.

Several projects have already signed a customer but none have disclosed the pricing terms of the deals.

Like most analysts, Credit Suisse expects BG Group's to be the first of the four large-scale projects to make a final investment decision, although risks of delay exist for the others, it said.

The broker has stuck to its estimate that LNG from CSG will be sold at a 10% discount to traditional LNG from natural gas, which is typically sold at a 15% discount to oil price parity.

Santos Vice President Gladstone LNG Rick Wilkinson said in June that CSG's lower heating value isn't fazing the Japanese and that spiking LNG with LPG is cheap and "not rocket science".

Wilkinson said Japan has been importing low heating value gas from Alaska since the late 1960s and that some oncoming LNG projects sourced with traditional natural gas were "at the lower end of the scale" in terms of their product's heating value anyway.

At odds with that sentiment, a person familiar with the situation said last month that Tokyo Electric Power Co. (9501.TO) isn't likely to buy stakes in Australian liquefied natural gas projects that use coal seam gas as feedstock, or sign any long-term supply deals.

This follows discussions between the utility, known as Tepco, and the developers of several Gladstone LNG projects, including Santos, the person said.

However, just days later, Japan's Toyota Tsusho Corp. (8015.TO), partly owned by Toyota Motor Corp. (7203.TO) agreed to buy the first 1.5 million-tons-a-year of LNG from Liquefied Natural Gas Ltd.'s proposed smaller-scale Fisherman's Landing project at Gladstone.

Arrow Energy Ltd. (AOE.AU) has agreed to feed that project and its chief executive, Nick Davies, said Sep. 29 that there are many Japanese LNG users interested in buying LNG produced from CSG.

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