Royal Dutch/Shell and the Unocal Corporation have withdrawn from
one of the largest offshore gas exploitation projects in China.
The companies pulled out of the deal involving the joint
exploration, development, and marketing of natural gas resources in
the Xihu Trough of the East China Sea, citing commercial reasons,
Shell and Unocal said on Wednesday.
The withdrawal of their overseas partners leaves Sinopec and the China National
Offshore Oil Corp. (CNOOC) -- the country’s second and third
largest oil firms -- the only players in the project.
Analysts said the move by the overseas partners casts doubt on
the potential of the Xihu Trough, one of China’s top gas
discoveries in recent decades. Earlier this year, Sinopec reported
that it had overestimated its estimates of reserves in the
area.
The project was the largest Sino-foreign gas exploration project
to date.
In early August 2003, the four companies signed five contracts
to explore three blocks and develop two in the Xihu Trough, with an
initial investment of US$85 million. The blocks, 500 kilometers
southeast of Shanghai, cover 22,000 square kilometers.
The centerpiece of the project is development of the Chunxiao
field, which supplies gas to booming Shanghai
and Zhejiang
Province.
CNOOC and Sinopec each hold a 30 percent share in the project,
while Shell and Unocal each have 20 percent. The terms of the
agreements allowed the partners to make a final investment decision
after a 12-month period of appraisal and analysis.
Barry Lane, spokesman for the United States-based Unocal, said
in a telephone interview: “After the first year of analysis, we
found the resources do not meet our commercial requirements.”
In a joint press release, CNOOC and Sinopec announced that Shell
and Unocal have decided not to continue participating in the next
phase, “since both sides have failed to agree on the existing
development plan.”
The Xihu Trough project is seen as an important way for China to
boost use of natural gas in coastal areas, as it seeks to diversify
its energy mix and reduce pollution. The government plans to
increase gas to 8 percent in the total energy consumption mix by
2010 from less than 3 percent at present.
Earlier this year the project attracted international attention
after Japan protested that the development of Xihu Trough extends
beyond the “demarcation line” between the two countries. China
refuted the claim and rejected the validity of the line itself,
arguing that the natural demarcation should be drawn further
east.
Unocal’s spokesman on Wednesday dismissed suggestions that the
company’s decision had anything to do with political disputes.
Despite the withdrawal of the foreign partners, CNOOC remains
optimistic.
“We are confident about the project’s future. The change of
partners has little impact on the ongoing project,” said CNOOC
Chairman and CEO Fu Chengyu.
Company President Zhou Shouwei said that they expect to complete
project on schedule.
CNOOC said the Chunxiao field, the first to be completed in the
Xihu Trough, is set to come on stream in mid-2005.
Chunxiao is expected to produce 2.5 billion cubic meters of
natural gas in the first two years after production begins.
Analysts said that the withdrawal of the overseas firms might
cause difficulties, although they believe CNOOC has sufficient
technology and experience to carry the project through.
“CNOOC now has to raise additional funds to finance the
project,” said Liu Gu, an oil and gas analyst with Guotai Gun’an
Securities Hong Kong. “In addition, Shell’s excellent experience
and technology in deep-water exploration may also have increased
the possibilities of success, if they were in.”
The Xihu Trough project is the second large project Shell has
scrapped this year in China. Just two months ago, Shell, along with
ExxonMobil and Russia’s Gazprom, pulled out of the west-east
natural gas pipeline project after failing to reach commercial
terms with Chinese companies.
Liu said it comes as no surprise that Shell is adjusting its
global strategy following a management reshuffle earlier this
year.
(China Daily September 30, 2004)