Negotiations over US$5.6bn JV Gas Project Continues

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Last updated at: (Beijing Time) Saturday, June 01, 2002

Negotiations over US$5.6bn JV Gas Project Continues

PetroChina, China's largest gas producer, said it hopes to finalize negotiations over a joint venture with Royal/Dutch Shell to build the US$5.6 billion west-east gas pipeline in June as scheduled.

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PetroChina, China's largest gas producer, said it hopes to finalize negotiations over a joint venture with Royal/Dutch Shell to build the US$5.6 billion west-east gas pipeline in June as scheduled.

The talks are well on track, and PetroChina is ready to kick off the overall construction of the project this month, said Shi Xingquan, vice-president of PetroChina.

PetroChina and a foreign consortium led by Shell preliminarily agreed in December to jointly build the 4,000-kilometre pipeline to trench natural gas from the Xinjiang Uygur Autonomous Region in the west to coastal Shanghai in the east.

The joint venture is scheduled to start construction in the first half of this year and is to transmit gas to Shanghai in early 2004.

PetroChina has already been working on some experimental sections of the pipeline.

Analysts said if the trunkline fails to deliver enough gas on time, the pipeline would lose money.

The financial news provider Bloomberg yesterday said Royal Dutch/Shell Group agreed to operate Kela-2, China's No 2 natural gas field to deliver the gas.

Shell will run Kela-2 and four other fields for two years. Shell may buy a 45 per cent stake in them from owner PetroChina, Sun Longde, vice-president of PetroChina unit Tarim Oilfield, was quoted as saying.

According to the December agreement, Shell's consortium, including Russia's Gazprom, will take a 45 per cent stake in the project, making it responsible for the pipeline construction and gas field development. PetroChina will take the rest.

Shell is courting more foreign companies to join the team, including ExxonMobil and Malaysia's Petronas.

But BP, another international oil major shortlisted for negotiating with PetroChina, dropped the offer at the last minute, saying "the demanding timetable and the advanced stage of the project definition'' made it quit.

Steve Buckley, head of the Commercial Section of the British Embassy, said it is not strange for a company to give up something it does not want.

"It is impossible to get your finger on every thing,'' he said. "They just devote themselves to whatever they think is the most suitable.''

Despite the BP's pullout, he said, many small and medium-sized British companies have shown interest in getting involved, including those in related industries like turbine and steel and service companies.

He said foreign companies are also keen to invest in China's fledging but fast growing gas market because the government is tripling gas consumption in the next decade.

"It is a very big market, not only for direct investment, but for loans from banks,'' Buckley said.

He said China has formed a gas work group to seek business opportunities in areas like pipelines, safety and environment, training techniques and LNG (liquefied natural gas) terminal construction.

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