PetroChina drops foreign partners on pipeline
PetroChina, China's largest oil company, said it will go it alone in the financing and operation of its multi-billion dollar West to East gas pipeline after it dropped a consortium of foreign partners led by Royal Dutch Shell.
"We could not find a way to cooperate on the deal," a top official at PetroChina's pipeline subsidiary, the West-East Pipeline Company, said.
"PetroChina will now finish the project on its own for the country," he said, according to an AFP report.
Under the framework agreement signed in July 2002, PetroChina was to own half of the 4,000 kilometre (2,400 mile) pipeline that would pump gas from China's western Xinjiang to its energy-hungry cities in the east.
The construction of the US$5.2 billion trunk line was completed this week and is expected to begin delivering gas on a full-time basis to Shanghai and other areas of the Yangtze Delta by early next year.
It will supply 12 billion cubic meters (420 billion cubic feet) annually once fully operational in 2007.
The original agreement was to establish two consortia, one to run the pipeline and the other to sell the gas.
Shell, Exxon Mobil of the United States and Russia's Gazprom were to hold 15 percent each, with the Chinese refiner Sinopec taking a five percent stake.
"PetroChina could not guarantee the 15 percent return requested by the foreign investors," said He Jun, a senior analyst with Beijing-based Anbound Group.
A report in the Financial Times also said that the foreign partners had been frustrated in the talks by PetroChina's top management, which had showed little enthusiasm to accommodate their concerns.
"They could not agree on the price of the deal," said Belle Liang, oil analyst at Core Pacific Yamaichi.
The pipeline, which is central to China's energy policy shift away from reliance on coal to cleaner burning natural gas, is intended to supply up to 10 per cent of the country's enery needs by 2020.
Despite the central government's target, Shell and others were worried that these changes would not happen quickly enough and they would lose money.
"They were worried that the project would not pay off very soon," Liang said, adding that they were worried that major customers such as coal burning power stations would not switch to gas quickly enough.
It was also unclear whether PetroChina could successfully market the gas amid growing competition from rival suppliers in Australia and Indonesia as well as China National Offshore Oil Corp (CNOOC).
"The price of the gas carried by the pipeline will be comparatively higher, which puts PetroChina at a competitive disadvantage," said He of Anbound Group.
Analysts added that PetroChina's decision to strike on its own would also require deep pockets which despite state-backing it does not have.
To finance the pipeline it has been studying the possibility of a domestic listing and could be looking to raise a reported US$3.6-4.0 billion in what would be the country's largest ever share offer.
The company's goal to list by year-end, however, is unlikely to win approval from regulators, said Liang, given the impact such a large offer would have on liquidity in the country's already struggling stock markets.