BG Group, the gas and oil company, has moved close to success with its £470m bid for Pure Energy of Australia, now its rival Arrow Energy, also of Australia, has dropped out of the contest.

Arrow said on Monday that it was abandoning its bid for Pure, which was worth less than BG’s A$8.25 a share offer.

Arrow did not say what it would do with its 20.3 per cent stake in Pure, but it would make a profit of almost $200m (£142m) from accepting the BG bid.

The A$1.03bn (£484m) deal is important for BG to cement its position in Australian coal bed methane – gas extracted from coal seams – which has been a focus of interest for many international energy groups over the past year.

The bid for Pure pitted BG against its larger rival Royal Dutch Shell, which is a joint venture partner of Arrow in developing coal bed methane in Australia and around the world.

Arrow on Monday said that the two companies were making an investment in a coal bed methane project in China.

However, two weeks ago Shell undermined Arrow’s chances of winning Pure when it said that it would sell its 11 per cent stake to BG, unless there was a higher offer.

BG’s offer closes next Monday. It now holds 33 per cent of Pure, excluding the Shell stake. BG plans to use the coal bed methane it will produce in Australia to feed a liquefied natural gas plant in Queensland, to serve Asian markets.

It always insisted that it would have enough gas to fill that plant even without Pure, thanks to its £2bn acquisition of Queensland Gas Company last year.

However, securing access to Pure’s reserves would make BG more comfortable that it could produce sufficient volumes for what is still an untried process. No-one has yet set up a commercial project using coal bed methane to produce LNG.

BG’s success suggests it is continuing to pull ahead of Shell, which has made less progress with its evaluation of a possible LNG plant in Queensland.

Shell is likely to be called on to discuss its prospects in coal bed methane when it gives its annual strategy presentation on Tuesday.