The State appears to have adjusted its timetable for the kick-off
of the long-awaited west-east natural gas transmission project
after concluding that more work is needed to tap the potential
market and finalize joint venture talks with global oil
conglomerates.
An
official from the State Development Planning Commission said the
start of the project, previously scheduled for the end of
September, will be put off primarily due to unfinished co-operation
talks with foreign firms.
"To show our respect to our foreign partners, we have given up our
initial plan to kick off construction by the end of September.
"We will start construction after we finalize negotiations with our
foreign partners, and we hope to officially launch construction by
the year end," the official told Business Weekly.
The project aims to build a 4,000-kilometre long pipeline to
transport gas from west China's Tarim Basin in Xinjiang Uygur
Autonomous Region to the coastal Shanghai in the east.
The official said experimental construction of some sections of the
pipeline would soon start to ensure Shanghai will be able to use
the first flow of natural gas from the pipeline by late 2003.
PetroChina, the nation's largest gas producer that controls the
project, is currently negotiating with three consortia led by Exxon
Mobil and Royal/Dutch Shell and Russian gas producer Gazprom to
jointly build the US$5.6 billion pipeline, after BP withdrew from
bidding earlier in September.
A
BP spokesman said: "The demanding timetable and the advanced stage
of the project definition prevented BP from making the unique
contributions it likes to bring to all projects."
Despite some analysts' speculation that BP's withdrawal may signal
a lack of confidence in an adequate financial return for the
project, PetroChina said BP's move will not make other foreign
companies reluctant to invest in the project.
"Our negotiations with foreign firms are progressing smoothly, and
we are looking forward to a final result soon," said Huang Yan,
president of PetroChina.
PetroChina "has been and will always act in the best interests of
shareholders. It will adhere to the principle that investment
returns should always exceed minimum requirements,'' said an
earlier statement of the company following BP's pullout.
Problems remain
However, much remains to be done in order to realize what people
believe the project can bring.
One of the hottest issues was the price of natural gas to supply
local markets in eastern regions.
According to current "guide" gas prices, involving four provinces
-- Henan, Anhui, Jiangsu, Zhejiang -- and Shanghai Municipality
that are expected to receive the western gas, the price at the
Shanghai terminal will be higher than 1.3 yuan (15.7 US cents) per
cubic metre and that of Zhejiang will be even higher.
Many gas consumers vented their complaints about the unaffordable
prices.
Li
Weiyi, deputy general manager of Shanghai Natural Gas Pipeline
Networks Company (SNGC), said the price is "unacceptable" because
it is beyond what his company can afford.
"The potential market will be daunted by the unreasonable price,
and that will in the long run harm the fledgeling market," said Li,
adding that what SNGC can afford is 1.0 to 1.1 yuan (12 to 13 US
cents) per cubic metre.
Although most families will be able to afford the price for western
gas, other big consumers like power plants or industrial
manufacturers will find it a dismaying factor that hinders their
unreserved gas use, Li said.
According to the feasibility study, power plants will account for
nearly 50 per cent of the total natural gas use involved in the
giant project, which is expected to recoup its huge investment
around 10 years after its start.
In
expectation of some State preferential policies, many gas consumers
thus hold a wait-and-see attitude towards the thorny price
issue.
They are also calling on PetroChina, which is anxious to verify the
market potential before the project's official kick-off, to
significantly reduce the project costs so as to lower the gas price
to an affordable range.
PetroChina has signed letters of intent for gas sales with 46
companies in supply-targeted eastern areas, and the combined annual
gas consumption preliminarily confirmed by the companies is
expected to reach 14.6 billion cubic metres by 2007 and 18.2
billion cubic metres by 2010.
However, few consumers have signed take-or-pay contracts with
PetroChina which would allow the company to fix the amount of gas
sales at a set price.
Analysts said if these deals cannot be finalized, and if the actual
gas consumption in eastern areas fails to reach 12 billion cubic
metres by 2008--the break-even point for the project to cover its
costs--the much-vaunted project will turn out to be a money-losing
one.
As
a result, the SDPC official urged both PetroChina and consumers to
compromise to settle down the consumption amount.
"The price is not at all unreasonably unacceptable and it still has
some scope for reduction because of allowable tax deductions.
"We should abide by economic rules in terms of gas use...some
industrial projects like Baosteel's stainless steel production do
have a big appetite for western gas and they can afford it," said
the official.
"It is senseless to focus our attention only on those power plants
(planned to account for a major part of gas consumption)...our
standpoint is that gas use priority should go to the needy sectors
and those that can afford it.''
Analysts said the government would, by any means, proceed the
project, as the nation has pinned its hopes on the project to boost
the development of its resource-rich but economically undersized
western regions where one-third of China's population dwell.
Meanwhile, China also hopes the pipeline would help promote its
fledgeling natural gas industry, and reduce its huge oil imports
and heavy reliance on coal.
China is ambitious to double its annual production of natural gas
from 27 billion cubic metres in 2000 to 50 billion cubic metres in
2005. By 2010, natural gas would take up 10 per cent in China's
energy consumption mix, versus its current 2.1 per cent.
(China Daily October 10, 2001)