Chevron, CNPC to begin development of Luojiazhai gas field

Chevron Corp. and partner China National Petroleum Corp. (CNPC) were given approval by the Chinese government to proceed with the development of the Chuandongbei (CDB) Natural Gas Project, which includes the Tieshanpo, Dukouhe, Qilibei, Gunziping and Luojiazhai gas fields.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Nov. 9 -- Chevron Corp. and partner China National Petroleum Corp. (CNPC) were given approval by the Chinese government to proceed with the development of the Chuandongbei (CDB) Natural Gas Project, which includes the Tieshanpo, Dukouhe, Qilibei, Gunziping and Luojiazhai gas fields.

China’s National Development and Reform Commission approved the first stage of the development plans for the $4.7 billion project, which includes the relocation and completion of three gas purification trains and the completion of a sulfur plant.

CNPC said its wholly owned PetroChina subsidiary signed an agreement with Chevron unit Unocal East China Sea to start developing Luojiazhai gas field in the Chuandongbei region of China’s Sichuan province.

CNPC said the Luojiazhai project will be China’s largest upstream onshore project with a foreign partner.

In December 2007, Chevron and CNPC signed a 30-year production-sharing contract for the joint development of the 2,000-sq km Chuandongbei gas area, which has reserves estimated at 5 tcf of gas.

However, the agreement will also take up one of the country’s most sensitive projects as the Luojiazhai field development has been suspended since a March 2006 gas leak and an earlier explosion that killed more than 200 people and sent another 15,000 fleeing for safety.

Analyst IHS Global Insight said PetroChina is “keen to cooperate with Chevron given its own lack of technical expertise in developing high-sulfur fields, which was tragically demonstrated in 2003 following a blowout at the No. 16 well of Luojiazhai field, which killed around 200 people.”

Luojiazhai has a hydrogen sulfide content of 7.13-10.49%, while gas at nearby Dukouhe and Tieshanpo fields is said to be even more sour.

While noting the risk of further accidents, which make this project a highly sensitive one, IHS Global Insight said this development “promises a rare inroad into China's upstream sector for a foreign company, where only a couple of others such as Total and Shell have previously ventured.”

Chevron is well aware of its responsibilities regarding the safety of the project. When signing the 2007 agreement, Chevron said it would not sacrifice safety to meet an "aggressive date" of October laid down by PetroChina for first production from the Chuandongbei block.

At the time, Stephen Green, former chief executive of Chevron's South Asia unit, said the firm would work as swiftly as possible following the 30-year agreement with CNPC, but that there were “a variety of moving pieces” that could push back the timing of initial output.

In particular, Green said residents living close to the well sites would have to be moved and exclusion zones built to prevent accidents similar to the fatal explosion in December 2003.

"Our interests and those of PetroChina's are aligned in that we both have interest in getting the gas on production as quickly as possible," Green told Dow Jones Newswires.

But, he added, "We will not sacrifice safety either for our people or the community in order to achieve first gas date."

China's top economic planning agency, the National Development and Reform Commission, last week approved the first phase of the $4.7-billion natural gas project, which includes the relocation and completion of three natural gas purification trains and the completion of a sulfur plant.

CNPC holds a 51% stake in the project, while operator Chevron has the remaining 49%.

Contact Eric Watkins at hippalus@yahoo.com.

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