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PetroChina Expects to Team Up With Shell and ExxonMobil

[WTN-L World Tibet Network News. Published by The Canada Tibet Committee. Issue ID: 02/02/14; February 14, 2002.]

Inside China, 14 Feb 2002.

18-12-01 PetroChina said it expects to team up with both Shell and ExxonMobil to develop a 4,200 km (2,600-mile), $ 5.6 bn natural gas pipeline in China. Participation by the global oil majors in the long-planned pipeline stretching from the western region of Xinjiang to Shanghai will be viewed as positive for PetroChina shares which have been hit recently by weaker oil prices, analysts say.

"Talks on investment in the west-east pipeline project are proceeding smoothly," PetroChina's Executive Director and Vice President Wang Fucheng told. "We have thus far reached agreement with Shell on behalf of all other foreign investors on the principle of cooperation" in terms of pipeline construction, exploration and development of gas fields related to the project and gas marketing, Wang said.

Shell is representing all partners of two foreign consortia, respectively led by Shell and Exxon/Mobil, which were invited by the largest Chinese oil producer earlier this year to bid for the project, he said. The Shell-led consortium includes Russian gas giant Gazprom and Hong Kong & China Gas, while the ExxonMobil-led group includes Hong Kong-listed power producer CLP Holdings.

"Shell is in talks with PetroChina on behalf of all the other foreign investors," Wang said by phone from Beijing. When asked if it is likely that only the Shell-led consortium will take part in the project, Wang said: "The possibility is very, very small".

The feasibility study on the project will soon be approved by the Chinese government and a final agreement signed. Construction of a trial section of the pipeline should start by the end of this month, he added.

Wang said PetroChina will hold a controlling stake in the pipeline, expected to deliver natural gas to Shanghai in late 2003 and annually pump up to 20 bn cm. The pipeline is part of Beijing's strategy to develop China's west, whose economic growth has lagged far behind the east in the past two decades.

It's also China's plan to boost the use of natural gas, estimatedto account for only 3 % of total primary energy consumption. China says it wants to boost that number to 6 % by 2010. The natural gas through the west-east trunkline will be consumed by power plants, fertiliser makers and residents, Wang said. Power plants will eventually take 60 % of the gas, he said.

Wang also said China may take some measures to encourage power plants to use natural gas, which is much more expensive than coal now being used by most of the country's power generators. Analysts expect some subsidies for those plants.

PetroChina, which accounts for 70 % of China's discovered gas reserves, expects its natural gas production to rise 10 % annually over the next several years and become a key force behind its business growth, he said. "The natural gas growth will become a new growth point for our business," Wang said.

He also said PetroChina plans to increase capital expenditure on its upstream business -- exploration and production of oil and gas -- next year, while slightly reducing spending on the downstream businesses, which are hurt by weaker demand caused by the global economic slowdown.

Capital expenditure on the upstream businesses next year will account for more than 70 % of the company's total 2002 capex, which should be similar to this year's 67 bn yuan ($ 8.1 bn), Wang said. PetroChina is not anticipating an increase in oil prices next year for financial planning purposes.

"Our 2002 budget, which is being drafted, will be based on an assumption of $ 18 per barrel." Wang reiterated the company's plan to cut its lifting cost -- the cost of bringing each barrel of crude to the surface -- to $ 4.15 in 2002 from $ 4.37 targeted for this year.

The company was recently chosen by financial magazine Asiamoney as one of China's best-managed companies in 2001.

Source: Reuters

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