Financial Times: Sinopec denies quitting project: “The company also announced a $187m joint venture with Royal Dutch/Shell to operate 500 petrol stations in eastern China.” (ShellNews.net)

By Enid Tsui in Hong Kong

Published: August 31 2004

Chen Tonghai, chairman of Sinopec, one of China's big three oil companies, yesterday denied that his company had withdrawn from the controversial west-east gas pipeline project in China.

The statement, made at a press conference in Hong Kong, contradicted an August 5 filing by rival Petrochina, which claimed that the joint venture framework agreement signed by all potential investors in the project, including Royal Dutch/Shell and Exxon-Mobil, had been terminated.

Chen Geng, Petrochina's chairman, confirmed to reporters last week that the company was the sole investor in the $18bn pipeline, which would link gas supplies in Xinjiang province in the west to Shanghai on the coast.

However, that announcement was "premature", Sinopec said yesterday. The two sides had signed a contract giving Sinopec the option of a 5 per cent stake in the pipeline and that agreement remained legally valid, Mr Chen said.

Analysts were baffled by the development and were eager for clarification from both sides. "I cannot understand why there is disagreement over such a small stake," said Grace Liu, petroleum analyst at Guotai Junan Hong Kong, a brokerage. "Whether Sinopec invests in the pipeline or not doesn't have a material impact on its prospects."

Mr Chen of Sinopec said: "We will make a decision about the pipeline at a later date. We have gas reserves in Xinjiang, which we plan to start pumping next year. The main challenge faced by our natural gas business is the [lack of] demand, something which our involvement in the pipeline will not change."

While analysts have doubts regarding the project's return on investment, its significance in China's energy policy is enormous as the country attempts to reduce its reliance on oil.

Meanwhile, Sinopec reported yesterday a 51 per cent rise in interim net profit to Rmb16.2bn ($1.95bn) while turnover rose 34 per cent to Rmb275.4bn.

A net buyer of oil despite its own significant reserves, Sinopec managed to keep a lid on what it paid for crude imports by actively trading in oil futures markets abroad. The company also raised its profit margins by purchasing a higher proportion of cheaper "sour crude" as more plants have been upgraded to cope with the higher sulphur content.

Sinopec expects prices of both refined products and crude oil to remain higher in the second half, which will keep its profits at a similar level.

The company also announced a $187m joint venture with Royal Dutch/ Shell to operate 500 petrol stations in eastern China.

Sinopec shares in Hong Kong rose 1.7 per cent to HK$3.05 yesterday.