By the OGJ Online Staff
LONDON, Jan. 4 -- China's ambitious plan to build a pipeline linking the nation's eastern and western regions is being affected by a dispute over prices customers are willing to pay for the oil and gas to be transported.
The state oil holding company, PetroChina Co., is due to announce within the next few days a preliminary agreement to construct the pipeline with partner companies, but there are concerns that a prime contractor has yet to designated.
Bids for the construction of the $5 billion, 4,000 km pipeline are being prepared by two consortia, one led by Royal Dutch/Shell Group with Russia's OAO Gazprom and Hong Kong & China Gas Co., and the other led by ExxonMobil Corp. with Hong Kong-based CLP Holdings Ltd.
BP PLC, China's biggest foreign investor, led a group including Malaysia's Petronas but withdrew its bid in September.
For Shell and ExxonMobil, the project is a chance to increase their presence in China, Asia's fastest-growing energy market, and gain access to China's western oil and gas fields. A compromise is likely to emerge that will allow the two consortia to become partners in the project.
PetroChina has said it may allow foreign companies to explore for oil and gas in Xinjiang if they agreed to invest in the pipeline.
Natalia Selivanova, a Gazprom spokeswoman, said, "An intermediate document is to be signed in the near future, which is unlikely to specify who the principal contractor will be. The question of the price for gas is the main issue."
PetroChina has refused to comment, but has previously announced that it aims to complete the pipeline, part of a $14 billion project to tap gas reserves in northwestern Xinjiang province, by 2005 to help replace dwindling reserves from older fields and meet commitments to customers in Shanghai.
Gas prices in China are capped by the government, which wants to encourage the fuel's use to reduce its reliance on coal. China plans to more than quadruple the use of gas by 2010. Coal now accounts for 70% of its energy.
The price ceiling is discouraging companies from boosting their investments to explore for gas and build pipelines.
The east-west pipeline is China's biggest infrastructure project after the Three Gorges Dam. The country predicts gas reserves found in the Tarim basin of the Xinjiang Province may rise 30% to 650 billion cu m by the first half of 2002.
PetroChina's oil fields in the province may also hold about 623 million bbl.
Delays to the pipeline may benefit rival Chinese producer China National Offshore Oil Co. (CNOOC), which plans to develop offshore gas fields 400 km east of Shanghai and move the gas by pipeline to cities on the East Coast.
Some analysts have cited the proximity of CNOOC's fields as evidence that PetroChina's pipeline has more to do with political aspirations than economic sense. The project is part of a $48 billion government program to develop its 11 western provinces, where a quarter of the country's population generate only a seventh of its wealth.
The pipeline from Xinjiang would also serve a gas field in Inner Mongolia, less than half the distance from Shanghai. Shell had argued that that field should be tapped first to reduce the initial cost until a market for gas had been created in Shanghai.
The Chinese government vetoed that proposal and insisted the pipeline should link the Xinjiang fields as early as possible to speed development in the region.