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PetroChina drops foreign partners on pipeline
(Agencies)
Updated: 2004-08-04 16:45
PetroChina, China's largest oil company, said it will go it alone in the
financing and operation of its multi-billion dollar West to East gas pipeline
after it dropped a consortium of foreign partners led by Royal Dutch Shell.
A PetroChina worker
loads cannisters of liquified petroleum gas (LPG) onto a truck in Beijing.
PetroChina, China's largest oil company, said it will go it alone in the
financing and operation of its multi-billion dollar West to East gas
pipeline after it dropped a consortium of foreign partners led by Royal
Dutch Shell. [AFP file] | After more than nearly
two years of talks, PetroChina and its prospective foreign partners remained at
odds on a range issues that analysts said centred around pricing and the rate of
return on the massive project, estimated to be worth 18 billion dollars.
"We could not find a way to cooperate on the deal," a top official at
PetroChina's pipeline subsidiary, the West-East Pipeline Company, said.
"PetroChina will now finish the project on its own for the country," he said,
according to an AFP report.
Under the framework agreement signed in July 2002, PetroChina was to own half
of the 4,000 kilometre (2,400 mile) pipeline that would pump gas from China's
western Xinjiang to its energy-hungry cities in the east.
The construction of the US$5.2 billion trunk line was completed this week and
is expected to begin delivering gas on a full-time basis to Shanghai and other
areas of the Yangtze Delta by early next year.
It will supply 12 billion cubic meters (420 billion cubic feet) annually once
fully operational in 2007.
The original agreement was to establish two consortia, one to run the
pipeline and the other to sell the gas.
Shell, Exxon Mobil of the United States and Russia's Gazprom were to hold 15
percent each, with the Chinese refiner Sinopec taking a five percent stake.
Welders work on the
final touches of the East-West natural gas pipeline Tuesday in Northwest
China's Gansu Province. The 4,000-kilometre pipeline was started on July
4, 2002. Gas is expected to start flowing on October 1.
[Xinhua] | Company executives refused to reveal
specifics but negotiations hit an impasse when the foreign partners asked
PetroChina to guarantee a 15 percent return on investment on the project,
analysts said.
"PetroChina could not guarantee the 15 percent return requested by the
foreign investors," said He Jun, a senior analyst with Beijing-based Anbound
Group.
A report in the Financial Times also said that the foreign partners had been
frustrated in the talks by PetroChina's top management, which had showed little
enthusiasm to accommodate their concerns.
"They could not agree on the price of the deal," said Belle Liang, oil
analyst at Core Pacific Yamaichi.
The pipeline, which is central to China's energy policy shift away from
reliance on coal to cleaner burning natural gas, is intended to supply up to 10
per cent of the country's enery needs by 2020.
Despite the central government's target, Shell and others were worried that
these changes would not happen quickly enough and they would lose money.
"They were worried that the project would not pay off very soon," Liang said,
adding that they were worried that major customers such as coal burning power
stations would not switch to gas quickly enough.
It was also unclear whether PetroChina could successfully market the gas amid
growing competition from rival suppliers in Australia and Indonesia as well as
China National Offshore Oil Corp (CNOOC).
"The price of the gas carried by the pipeline will be comparatively higher,
which puts PetroChina at a competitive disadvantage," said He of Anbound Group.
Analysts added that PetroChina's decision to strike on its own would also
require deep pockets which despite state-backing it does not have.
To finance the pipeline it has been studying the possibility of a domestic
listing and could be looking to raise a reported US$3.6-4.0 billion in what
would be the country's largest ever share offer.
The company's goal to list by year-end, however, is unlikely to win approval
from regulators, said Liang, given the impact such a large offer would have on
liquidity in the country's already struggling stock markets.
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