Royal Dutch/Shell Group has clinched its first onshore oil and gas production venture on the mainland, signing a contract with PetroChina to jointly develop the Changbei gasfield spanning Shaanxi province and Inner Mongolia Autonomous Region. The European energy giant said it would be entitled to half of the gas produced from the field whose development was estimated to cost US$600 million over 20 years. It will operate the project under a production-sharing contract. Gas is expected to start flowing in 2007, with 1.5 billion cubic metres (bcm) expected that year, rising to three billion bcm in 2008. The gas will be delivered by the second Shaanxi-Beijing gas pipeline, which is under construction. The Changbei field is estimated to have 50 bcm of gas reserves, small compared with the 533.65 bcm reserve of PetroChina's Sulige field in Shaanxi, whose gas will also be delivered by the second pipeline. The second pipeline, will have an annual capacity of 12 bcm - equal to the 3,800km west-east pipeline from Xinjiang province to Shanghai. 'The Changbei project is the largest onshore Chinese-foreign exploration and production project,' PetroChina Interational president Yan Cunzhang said. 'It will harness the best of our two companies in the project, combining Chinese design, materials and services with sophisticated technologies from Shell.' The intent to co-operate first started in March 2000 shortly ahead of PetroChina's initial public offering, when the two firms signed a letter of intent to study gas transmission and marketing for the Changbei gas project. According to a PetroChina official, Chinese oil firms generally only invite foreign participation in mainland oil and gas production projects if they believe the foreign party can contribute technology the Chinese firm does not have. So far, PetroChina's only other upstream co-operation with foreign firms is with United States-based Apache in an oilfield in Bohai Bay, in northeast China. Both the Changbei gas project and Bohai Bay oil project are small relative to PetroChina's oil output of 778.4 million barrels and gas output of 23.8 bcm last year.