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Eric Ng

Negotiations with Shell and ExxonMobil end amid talk the energy giant has sufficient finances to complete the project

PetroChina has ended a preliminary agreement with foreign oil companies   on the west-to-east gas pipeline project, after two years of talks  failed to yield a unified investment strategy.

The differences are believed to have involved  the distribution of gas reserves as well as the length of the joint venture contract, which would affect the rate of return for the foreign firms.

Analysts also say  PetroChina may no longer see the need to use  foreign capital and expertise to complete the strategically sensitive project.

Spokesmen at  Royal Dutch/Shell and  ExxonMobil - leaders of two foreign consortiums involved in the talks  - last night confirmed that  PetroChina had notified them of the termination on Monday.

A spokesman from PetroChina  was unavailable for comment.

Shell, ExxonMobil and  Gasprom of Russia led three consortiums that signed a framework agreement with PetroChina in July 2002, under which they were to take a combined 45 per cent stake in the building  of the US$5.2 billion, 4,000km gas pipeline.

Including  development of upstream gas fields  and downstream  distribution facilities, the project's  investment cost  has been estimated  at more than US$20 billion.

The pipeline - China's longest - is a priority project for Beijing as it is  considered central to efforts to raise  usage of cleaner fuels and the transport of  vast natural resources from  China's sparsely populated western regions to  the rapidly growing coastal markets.

Since the pipeline's eastern section was completed  last year, speculation has been rife that the talks  had broken down over  profit-sharing terms and rates of return.

While officials at the negotiating companies insisted that the talks  were continuing,  PetroChina officials were saying that the company would have no problem completing the project alone.

'We all regret that we have been unable to reach an agreement ... the talks have not made much progress this year,' said Shell's Beijing-based spokesman. 'We look forward to other future co-operation opportunities.'

Gordon Kwan, China energy specialist at Kingsway Securities, said PetroChina had sought  foreign participation  in 2001 because  it wanted to share investment costs and project risks.

'In 2001, most analysts forecast that oil prices would average US$20 a barrel this year,' he said. 'With the sharp rise in oil prices, PetroChina is flush with cash.'

Recent gas discoveries in western and northern China may have made PetroChina more reluctant to share profits with foreign parties, Mr Kwan said.

PetroChina's proven gas reserves have grown  13.74 per cent over the past two years to 41.06 billion cubic feet, according to its annual report filed with  the New York Stock Exchange.

Most of the increase came from the Changqing field in Shaanxi province and Tarim Basin in Xinjiang.

PetroChina's gas production rose 14 per cent last year to 1.89 billion cubic feet per day.

The eastern section  from Shaanxi to Shanghai started  operations last year, while the western section from Xinjiang to Shaanxi should be ready in October.



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PetroChina cuts pipeline's foreign ties