The vast Chinese energy market is about to move to the center stage of world oil industry activity, and senior oil company executives are likely to be spending the coming months signing contracts running into billions of dollars.
The long-predicted boom in the region is about to burst into reality.
The scale of the projects involved, the distances that pipelines will be required to cover, and the potential number of customers who will benefit from modern oil and gas production techniques exceeds all previous estimates.
Oil investments
The biggest foreign investment previously in China's energy sector came in 2000 when ExxonMobil Corp., Royal Dutch/Shell Group, and BP PLC paid a combined $2.7 billion for stakes in China's three state firms: Chinese National Offshore Oil Corp.; PetroChina, part of China National Petroleum Corp.; and China Petroleum & Chemical Corp.
However, that investment should be seen as enabling these companies access to even bigger investments through jointly financed and developed projects.
In fact Shell alone is likely to spend $3 billion in its involvement with PetroChina on the onshore Changbei gas project in Shaanxi and Inner Mongolia provinces in central China.
Marketing activities have already begun and have identified a strong gas demand. A joint prefeasibility study for the pipeline route is starting. The gas pipeline network involved will form a key part of the nation's long-term gas distribution plan.
Evaluation work started late last year testing the potential of wells in the gas field. The project is expected to deliver up to 3 billion cu m/year of gas for 20 years to eastern China.
Pipeline talks
Several offshore projects are at an advanced stage to bring gas ashore to serve the densely populated areas in the Guandong region, but the real test for international cooperation will come when negotiations start shortly on the politically important 4,000 km east-west pipeline project.
With a price tag of over $25 billion, the scheme involves three projects to bring gas from the deserts of Xinjiang in the west and the depths of the East China Sea to the nation's power stations and to domestic customers. The pipeline will cross mountains, deserts, and 40 major rivers. And it will involve building China's first import terminal for LNG.
The project has drawn the oil majors to the negotiation table. Shell and Unocal Corp. are involved in exploration in Xingian, BP has taken a large state in the proposed LNG terminal project, and ExxonMobil and Russia's Gazprom are heavily involved in the pipeline project. Few companies will wish to be left out.
Negotiations will be complex, bearing in mind the difference in the cost of producing gas from established offshore areas, where there already is an established infrastructure, and the relatively undeveloped fields in the far northwest.
Their success will be a triumph for goodwill, good faith, and flexibility.