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JV Deal Worth Billions Close to Being Signed
After repeated postponements, the joint venture between PetroChina and Royal/Dutch Shell to build a US$5.6 billion west-east gas pipeline is likely to become a reality by the end of this month, a senior industry official said.

"Principal terms (of the joint venture) have been settled,'' said the official. "Only technical problems remain to be discussed.''

The joint venture aims to build a 3,900-kilometre pipeline to transport natural gas from the Northwest China's Xinjiang Uygur Autonomous Region to Shanghai on the coast. Construction had been slated to start last October, but was put off due to prolonged negotiations between PetroChina and a consortium of foreign companies led by Shell.

The official declined to comment on a report from the Dow Jones Newswire that the two parties will sign the joint-venture contract on July 1, a red-letter day marking the 81st anniversary of the founding of the Chinese Communist Party.

The report also quotes an unidentified PetroChina official as saying that construction will start on July 3.

"The talks are drawing toward an end,'' said the official. "But we will not give a definite date.''

He said the talks were difficult, partly because foreign partners in the consortium had to take time to negotiate interest sharing amongst themselves.

Last December, PetroChina preliminarily agreed to allow the Shell-led consortium to own a 45 per cent stake in the project, including gas field development, pipeline construction, and gas marketing.

The consortium originally comprised Shell, Russia's Gazprom -- the world's largest gas producer, Stroytransgaz and Hong Kong & China Gas.

The official confirmed that ExxonMobil, together with Hong Kong's CLP Holdings, is set to take a share in Shell's 45 per cent stake. But he ruled out the possibility of more foreign companies participating in the project, the People's Republic of China's second largest since its founding in 1949. The Three Gorges Dam project is the largest.

"Six companies are all that will join in,'' the official said.

Earlier reports said Malaysia's State-owned oil company Petronas wants to take part, even after BP, its former partner in a bid for a stake in the project, withdrew.

Without signing the agreement for the joint venture, PetroChina has started trial construction at a few pipeline locations in an attempt to meet the production target of early 2004.

The pipeline will be able to transport 12 billion cubic metres of gas annually for 20 years, and is seen as the flagship project to anchor China's drive to develop its resource-rich, but economically backward western regions.

The project is also the backbone of the government's policy of encouragement of gas consumption to alleviate the country's heavy reliance on oil imports and to protect the environment in affluent coastal areas.

The government's 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 June 24, 2002)

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