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Oil Giant Wants in on Gas Project
China Petroleum and Chemical Corp (Sinopec) looks to boost its ability to dominate the natural gas arena with the looming acquisition of China's fourth largest domestic oil company and a potential investment in the country's major gas highway currently under construction.

A spokesman for Sinopec recently revealed that the company is studying the possibility of purchasing equity in the US$4.6 billion west-east gas pipeline that will transport natural gas from gas fields in Northwest China to metropolitan centres in the east.

The spokesman did not say how much Sinopec would invest in the 4,000-kilometre pipeline.

After the company's impeding US$780 million acquisition of Sinopec Star from its parent China Petrochemical Corp later this month, Sinopec will control tremendous gas reserves in the Tarim Basin in Northwest China's Xinjiang Uygur Autonomous Region.

The basin is the primary gas field expected to provide gas through the west-east gas pipeline project to customers in East China's metropolitan Shanghai and the surrounding areas.

PetroChina, the nation's largest oil and gas producer, controls the gas pipeline project. It has invited foreign partners, including Shell, Exxon Mobile and BP to participate in the project.

"If Sinopec invests in the pipeline, the move will be conducive to the transport and marketing of its own gas," said an energy analyst from the China Energy Research Institute under the State Development Planning Commission.

But the Sinopec Star acquisition is not just about gas fields in the northwest.

After the deal is completed, Sinopec will also be able to tap China's offshore gas reserves because Sinopec Star owns half the equity of the Xihu Trough in the East China Sea.

The trough, 400 kilometers east of Shanghai, is the richest gas area in East China Sea with reserves estimated at about 300 billion cubic meters. Xihu includes Chunxiao, one of China's top three offshore gas pockets.

China National Offshore Oil Corp (CNOOC), the largest offshore oil company, owns the other half of the equity.

The two companies are expected to establish a committee to explore and develop the area with CNOOC Ltd likely to be the operator and foreign partners invited to take part in development.

After the Sinopec Star acquisition, Sinopec expects to increase its gas reserves by 19 percent and pass CNOOC to become the second largest gas producer in China.

A report from China International Capital Corp said Sinopec's gas production is expected to rise by 26 percent annually after the acquisition.

The Chinese Government has been pushing for the exploitation of natural gas reserves to alleviate the country's heavy reliance on oil imports and protect the environment. Its goal is to raise natural gas consumption to 10 percent of the energy mix from the current 2.1 percent over the next 10 years.

(China Daily 08/27/2001)

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