AFX Europe (Focus); Sinopec pulls out of 18 bln usd gas project with PetroChina - report (ShellNews.net)
Aug 27, 2004
BEIJING (AFX) - China Petroleum & Chemical Corp (Sinopec) (SHA 600028) has pulled out of an 18 bln usd natural gas project with China's PetroChina Co Ltd (857.HK), the South China Morning Post reported, citing a senior official from PetroChina.
The Hong Kong-based newspaper said Sinopec abandoned the project after PetroChina's recent failure to reach an investment agreement with several foreign partners.
"I recently met (Sinopec chairman) Chen Tonghai and he said they would not participate," PetroChina chairman Chen Geng was quoted as saying.
"But we have agreed that should they find gas in Tarim Basin (in the far western region of Xinjiang) we will guarantee to transport the gas for them."
Earlier this month, Royal Dutch/Shell Group, ExxonMobil Corp and Russia's Gazprom pulled out of the project after failing to reach agreement on a joint venture framework agreement with PetroChina, the listed unit of China's largest oil group CNPC.
The paper said Chen rejected speculation that the investors had retreated from the project because of its low return.
"This is absolutely not the case ... The return may be lower at the beginning due to depreciation charges, but it is expected to break even three years after start-up and it will generate profits for several decades thereafter," Chen said.
A spokeswoman for Sinopec declined to comment directly, instead pointing to a statement issued by PetroChina to the Hong Kong stock exchange earlier this month.
In the statement, PetroChina said it had served a termination notice to the parties involved in the joint venture framework agreement on August 2, and the parties had agreed.
That appeared to suggest that the termination of the joint venture agreement meant that the domestic portion of the accord was also no longer in effect, leaving PetroChina as the sole operator.
PetroChina said the project will continue "as normal" and the withdrawal of the other investors is not expected to have an adverse impact on the company.
Shell, ExxonMobil and Gazprom signed a preliminary agreement with PetroChina in July 2002 to each take a 15 pct stake in a consortium for the so-called west-east gas project.
Sinopec held a five pct stake.
One part of the project involved building a 4,000 km pipeline from the Tarim Basin in Xinjiang across central China and finally to Shanghai to transport natural gas to the country's energy-hungry cities.
The downstream side of the project, involving distribution and marketing gas to customers, was expected to cost between 8.5 and 9 bln usd and upstream activities estimated, involving gas exploration, was budgeted to cost around 3 bln usd.
The first section of the pipeline started operating in March this year, and the remaining 2,400 km link is due to start pumping gas by Jan 1, 2005.
allison.jackson@xinhuafinance.com