* Cost high for extracting gas trapped deep underground
* Agreement on retail price paves way to commit to project
DUBAI, June 20 (Reuters) - BP has agreed a price forany gas produced from Oman's Khazzan project as part of acommercial framework agreement with the government, the Britishenergy company said on Thursday.
BP has been negotiating for months over the price it willget for selling to the local market any gas produced fromKhazzan where it is tight or hard to bring out gas.
"We are pleased to have reached a price agreement that isacceptable to the government of Oman and delivers value to BP," a BP spokesman said, but declined to disclose the price.
"This commercial agreement provides a strong basis for BP tomove ahead toward a final investment decision on Khazzan, whichwe hope to accomplish by the end of 2013."
Artificially low government-controlled prices typical acrossthe energy-rich Gulf region have discouraged new projects neededto meet its rapidly rising demand for natural gas.
BP has already spent hundreds of millions of dollars on theproject since winning the concession in 2007, but had to agree asales price that covers the relatively high cost of extractinggas trapped in rocks deep underground before committing to it.
Small non-OPEC oil producer Oman has been focusing ondeveloping its gas industry to meet its booming domestic demandwhile maintaining its exports of liquefied natural gas.
Khazzan, a showcase project for BP's unconventional gastechnology, is expected to start production in 2017 and reachfull output of around 1 billion cubic feet per day a year later.
BP (BP.)
