PetroChina, the major Chinese backer of the project, is also expected to sign the long-awaited gas supply contracts in the next few weeks with two gas buyers, including a large petrochemical venture of German firm BASF.

PetroChina, also the largest domestic oil firm, has almost completed the construction of the eastern section of the 4,000 kilometre long pipeline, Wu Hong, vice-president of the West-East Gas Pipeline Company, a subsidiary of PetroChina, said Tuesday at a news briefing.

The cross-China gas pipeline aims to carry natural gas from remote deserts in the Xinjiang Uygur Autonomous Region to booming Shanghai, as part of the government's strategy to develop the economy of the remote, backward western regions.

The eastern section snakes 1,400 kilometres from Jingbian in West China's Shaanxi Province to Shanghai.

Wu said they plan to pump gas from gas fields in Shaanxi on October 1, and deliver the gas to Shanghai on January 1 next year.

Meanwhile, PetroChina has completed 60 per cent of the construction of the western section that runs from Jingbian in Shaanxi further westward to Tarim in Xinjiang.

Construction of the whole pipeline -- which will annually deliver 12 billion cubic metres of gas -- is due to be completed on January 1, 2005.

Wu said Tuesday that negotiations are continuing with the foreign consortium including Shell, Exxonmobil, and Russia's Gazprom, over the project's joint venture.

PetroChina signed a framework agreement last July to allow each of the three to take a 15 per cent stake in the project, including development of the gas fields and pipeline construction. The establishment of the joint venture was due to take place this month.

"We have different ideas about the project,'' said Wu who refused to go into further details.

The company is expected to sign take-or-pay supply contracts in early July with the Shanghai Natural Gas Grid Company and Yangzi-BASF Company. The Shanghai Natural Gas Grid is responsible for distributing the gas in Shanghai.

The two companies are expected to buy around 2.5 billion cubic metres a year.

Wu said the contracts will be a landmark, as these are the first take-or-pay contracts in China. These contracts are standard international practice, ensuring the company fixes the amount of gas sales at a set price.

Earlier last year, PetroChina signed non-binding supply contracts with 45 potential gas users with a combined potential demand of 16 billion cubic metres.

Wu said the company will continue negotiations with the remaining potential buyers in the coming months.

PetroChina plans to secure most of the potential customers before next January, but negotiations with the power companies are lagging behind due to the ongoing reform of the electricity industry.

Demand in the Yangtsze Delta including Shanghai and Jiangsu Province will exceed 30 billion cubic metres once the gas project starts, Wu said.

Netherlands-based financial conglomerate ING has predicted that the west-east gas project will contribute 7 per cent of PetroChina's net profit in 2006.

China wants to increase gas consumption to replace the coal, which is more harmful to the environment.

(China Daily June 25, 2003)