China Petroleum and Chemical Corp. (Sinopec) on Tuesday started issuing bonds totaling 20 billion yuan (US$2.67 billion) to finance the construction of a 2,800 kilometer natural gas pipeline running from southwestern Sichuan Province to Shanghai.

All the 20 billion yuan, along with Sinopec's initial investment of 25.07 billion yuan, will be injected into the 63 billion yuan project. The pipeline began construction in August. It is expected to provide Shanghai with 1.9 billion cubic meters of gas annually upon completion in 2010, the company said.

However, no details were given regarding how the company would raise the remaining 18 billion yuan.

The bonds will be issued at a par value of 100 yuan each exclusively for domestic institutional investors within the next three days, Sinopec said in a statement posted on its Website.

The issue breaks down into two types: 8.5 billion yuan will be issued with a term of five years and an annual interest rate of 5.4 percent, and 11.5 billion yuan will be issued with a term of 10 years and an interest rate of 5.68 percent.

The oil giant is also planning to issue 30 billion yuan in convertible bonds with warrants entitling the purchase of its shares. Some of the proceeds from the convertible bonds will be channeled into the project, the company said earlier this year.

The project includes the development of the Puguang gas field in Sichuan, the source of the pipeline and one of China's five largest gas fields, with proven reserves of 356 billion cubic meters as of the end of last year.

As Shanghai's demand for natural gas soars, China's top oil and gas producers have all looked at the eastern business hub as a major market.

China's first West-East gas pipeline, which was built by China National Petroleum Corp. and went into use in 2004, carries 1.2 billion cubic meters of gas annually to Shanghai from Xinjiang.

Its capacity is expected to reach 1.7 billion cubic meters next year.

China National Offshore Oil Corp. is also annually transporting 600 million cubic meters of gas to Shanghai from Pinghu, a gas field in the East China Sea.

Although China's natural gas output is expected to reach 94 billion cubic meters in 2010 from last year's 58.6 billion cubic meters, the country still needs imports to fill a gap of 16 billion cubic meters annually.

(Xinhua News Agency November 14, 2007)