PetroChina, China's largest oil and gas producer, and Royal Dutch/Shell Group, Europe's second-largest oil company, announced Tuesday the start of their partnership in developing the Changbei natural gas field in northwest China's Ordos Basin.

Shell will operate the project, and yesterday the two companies signed three drilling contracts and two letters of intent for engineering, procurement and construction contracts.

It marks the debut of the largest onshore exploration and production project between Chinese and foreign companies. The scheme is expected to start delivering 1.5 billion cubic meters of natural gas a year to consumers in Beijing, Shandong, Hebei and Tianjin by 2007.

Annual gas delivery capacity is expected to double to 3 billion cubic meters by 2008, said company sources. According to a Reuters report, the Changbei gas field holds 70 billion cubic meters of gas reserves.

Costing US$600 million, the project includes the construction of central processing facilities and inter-field pipelines as well as the drilling of about 50 wells within 10 years.

Over the 20 years of the project's lifetime, Shell will be entitled to own half of the gas production, according to the agreement with PetroChina.

Shell has shown an intense interest in developing China's gas sector, despite deciding not to invest in PetroChina's West-to-East gas pipeline megaproject.

It recently formed a US$91 million joint venture with Hangzhou Gas (Group) to operate and manage a high-pressure gas pipeline system in Hangzhou, capital of east China's Zhejiang Province, possibly paving the way for other investments, including liquefied natural gas terminals, said analysts.

(China Daily May 18, 2005)