"Sinopec and PetroChina, the nation's largest oil company that leads the project, have reached an agreement to allow Sinopec to invest in 5 per cent of PetroChina's equity in the US$5.6 billion pipeline," a source said.

According to the current plan, PetroChina is expected to hold 51 per cent shares of the pipeline, with the remaining 49 per cent reserved for foreign partners, including Royal/Dutch Shell and Exxon Mobile.

The source said that the share allocation between PetroChina and foreign companies in the pipeline is still under negotiation, while Sinopec's slice has been settled.

In August, Sinopec said it hopes to buy as much as 10 per cent in the project, which aims to build a 4,000-kilometre pipeline to transport no less than 10 billion cubic metres of natural gas each year, from Tarim Basin in Northwest China's Xinjiang Uygur Autonomous Region to Shanghai in the east.

Analysts have said that Sinopec's investment would help itself to facilitate the transportation and marketing of its natural gas resources in Tarim Basin to major markets in the east.

Sinopec has discovered some 50 billion cubic metres of natural gas in Tarim Basin, and its combined reserves in Tarim Basin and Ordos Basin are estimated to be able to supply 4 billion cubic metres of natural gas annually in the future.

Li Yizhong, president of Sinopec, said, "We have gas reserves in Xinjiang, and the best way to get them out is by investing in the pipeline."

The source said once Sinopec is involved in the project, it could have a strong say in the pipeline. PetroChina, the nation's largest gas producer and pipeline operator, has pinned its hopes on the pipeline to convert gas reserves into cash as its oil output and reserves wane.

"Sinopec has suggested to the State Development Planning Commission that the company's gas supply in the pipeline should not be refrained by the share limitation of 5 per cent, although PetroChina dominates the operation of the pipeline," the source said.

A PetroChina's spokesman said Sinopec's investment is welcome, "but the possibility for Sinopec to join us in developing PetroChina's gas reserves in the basin would be slim, because their gas production ability is not strong enough." Earlier PetroChina said it would allow foreign partners that participate in the pipeline construction to jointly develop its gas fields in Tarim Basin, including Kela II, which is one of the largest and best gas fields in China.

Three foreign consortia separately led by Royal/Dutch Shell, Exxon Mobile and Russia's largest gas producer Gazprom are negotiating with PetroChina to jointly build the pipeline and develop the gas fields.

The project, seen as a flagship project to anchor China's drive to develop its resource-rich, but economically backward western regions, is expected to be kicked off by the end of this year, and to transport gas to Shanghai by 2003. The Chinese Government has been pushing for the exploitation of natural gas reserves to alleviate the country's heavy reliance on oil imports and to protect the environment. Its goal is to raise natural gas consumption to 10 per cent of the energy mix from the current 2.1 per cent over the next 10 years.

(China Daily 10/06/2001)