Sinopec Denies Quitting Gas Pipeline Project
Sinopec, one of China's leading oil distributors, has
denied quitting a gas pipeline project from China's west
to east. This leaves Sinopec as the sole investor in the
project, which links Xinjiang in the west to Shanghai
in the east.
According to an August 5 filing by its competitor PetroChina
in Hong Kong, it had terminated the project. Sinopec claims
that the PetroChina announcement was premature, and claims
that the agreement, which gives Sinopec a 5 percent option
in the venture, is still valid.
The talks between PetroChina and its western partners
broke down when Royal Dutch Shell and ExxonMobil were
unable to agree on the rate of return on investment.
The different interpretations of what happened to the
gas pipeline project leaves the project in limbo, and
raises questions as to what the position of the Chinese
government is. On the one hand, it seems to raise the
possibility that Sinopec will take over the project; on
the other it may mean that the Chinese companies are waiting
for a directive from the Chinese government before deciding
how to proceed.
The main challenge is that gas is still priced higher
than other energy sources, and the Chinese government
is not willing to subsidize costs, even though it is a
cleaner energy source compared to coal.
Recent surges in demand from China have helped the Chinese
companies in their negotiating positions with the western
companies. While the western companies are anxious to
get in on the ground floor with the Chinese, they are
reluctant to take major costs which would hit their share
price.
China has large and cheap coal reserves, but it is criticized
as a heavy polluter. Because of China's severe
energy shortages, coal use has shot up.
Compared to its other Chinese competitors, Sinopec is
much more active on international oil futures markets,
and has been able to shield its profits from recent oil
price rises. This advantage may erode as Shanghai has
recently relaunched its oil
futures market.
As a result, Sinopec has partnered with Royal Dutch Shell
in opening retail gas stations in China and Hong
Kong to serve China's growing number of private car
owners.
Before you go, did you like this article?
If so, you can receive a free email newsletter version
each weekday. Sign up using the China Business Express
form on this page.
