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Massive pipeline project under way in
China
BEIJING - China on
Thursday kicked off an US$8.5 billion natural-gas
transmission project designed to supply billions of
cubic meters of gas each year to the country's east from
the northwest through a 4,200-kilometer pipeline.
PetroChina Co Ltd said it had signed a framework
agreement to build a West-East Gas Pipeline in
partnership with an international consortium. Company
vice president Wang Fucheng said PetroChina will hold a
50 percent stake while Shell, Gazprom and ExxonMobil
will each have a 15 percent interest. Sinopec Corp will
have a 5 percent interest in the project. CLP Holdings
Ltd and Hong Kong and China Gas Co Ltd have been named
as junior partners in the venture, although no details
were provided regarding the exact nature of their
involvement.
PetroChina's investment in the
whole project will amount to $2.7 billion and the
company had still to decide how this would be financed,
Wang said, adding it did not rule out the possibility of
an issue on China's yuan-denominated A-share market.
Construction of the pipeline has been delayed
for several months because of the prolonged negotiations
between PetroChina, one of China's main state-controlled
oil and petrochemicals groups, and the consortium.
Further negotiations will take place before a formal
joint-venture agreement can be signed, PetroChina said.
Deutsche Bank is the financial adviser to
PetroChina on the gas-pipeline project. The bank's head
of global corporate finance for Asia, managing director
Philip Crotty, said a formal joint-venture agreement has
to be negotiated and signed before the parties can go to
the debt markets to seek funding. "We are still some
months away before approaching the market for
syndication," he said.
Of the project's total
cost, $5.2 billion will be spent on the pipeline's
construction and the remaining $3.3 billion will be
invested in upstream operations.
The pipeline
starts from Lunnan oil and gas field in southern
Xinjiang Uygur Autonomous Region, northwestern China,
and runs through the provinces of Gansu, Shaanxi,
Shanxi, Henan, Anhui, Jiangsu and the Ningxia Hui
Autonomous Region, and ends at Shanghai and Zhejiang
province, eastern China.
Vice Premier Wu Bangguo
declared the construction of the project under way at a
ceremony in the Great Hall of the People in Beijing. In
a letter of congratulation, President Jiang Zemin said
the West-to-East Gas Pipeline Project is a major move in
China's strategy to promote the development of western
China.
During a meeting with overseas
contractors on Thursday, Premier Zhu Rongji said China
welcomes the involvement of overseas companies in the
project. He called for improved cooperation between
Chinese operators and their overseas partners in order
to complete the project as scheduled. The project is the
largest energy scheme opened to foreign cooperation
since China began its reform and opening-up drive more
than two decades ago, Zhu said.
Construction of
parts of the pipeline began on Thursday in the city of
Korla in the Xinjiang Uygur Autonomous Region, Nanjing
in Jiangsu province, Zhengzhou in Henan province and
Jingbian county in Shaanxi province.
At a
ceremony held on Thursday in the Gobi Desert at the
Tarim Oilfield, where the gas is to be extracted from,
six automatic machines began welding the pipeline in an
area decorated with colored flags.
When the
project is completed in 2005, it is expected to transfer
12 billion cubic meters of gas annually for industrial
and domestic use to Shanghai and other parts of the
Yangtze River Delta.
According to official
statistics, western China has a gas reserve of 2.2
trillion cubic meters, 59 percent of the total onshore
natural gas in China. Four key oilfields have been
opened up in the region over the past few years. They
have a combined yearly production capacity of 18 billion
cubic meters.
By 2010, western China will be
able to produce 50 billion cubic meters of gas annually,
half of which will be shipped to energy-starved eastern
China.
A Chinese economist said construction of
the West-East Gas Pipeline is of vital importance to
China's economic growth as a whole. Transmission of
large amounts of gas to energy-deficient eastern China
will help improve the energy structure of the Yangtze
River Delta. Moreover, pollution caused by industrial
waste in eastern China will be greatly reduced.
Official statistics show that Shanghai suffers
from acid rain on 11 percent of the 365 days each year.
When the gigantic gas project starts operation, the
sulfur dioxide in Shanghai is expected to be reduced by
90 percent.
As construction of the lengthy
pipeline requires 1.74 million tons of steel, large
amounts of cement and other building materials, it will
stimulate the cement, timber, machinery and iron and
steel industries in areas along the pipeline.
Operation of the pipeline will also make it
possible for 85 million urban households in eastern
China to use gas for cooking. In Shanghai and Jiangsu
province alone, 17 million urban households will have
access to natural gas.
The pipeline project has
attracted criticism from human-rights groups who say the
inhabitants of Muslim-majority Xinjiang are unlikely to
see any benefits. But Nick Wood, a spokesman for Shell
in Northeast Asia, said all parties pledged in the
agreement to meet international standards covering
environmental and social impact.
"Our principle
is any project we get involved in ... we look at
developing the project with as low an environmental
impact as possible and we look at the social impact to
make sure people affected will not be adversely affected
and make sure it'll improve their lives," Wood said.
(Asia Times Online/Asia Pulse/XIC)
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