Shell Oil Strikes Big Natural Gas Deal
Shell Oil has signed a multi-billion dollar deal to develop
the vast Xihu Trough natural gas field in the East China
sea off Shanghai.
Under the deal, Shell and Unocal will each take 20 percent
in a consortium to exploit five sections of the 22,000
square mile field, which lies 400 kilometers off the coast
of Shanghai. The domestic partners, CNOOC, is China's
largest offshore oil producer, and Sinopec is China's
largest oil refiner. Each will hold 30 percent, which
are now valued at US$1 billion each, but will rise to
US$10 billion over the length of the project. The field
is expected to go on-line in 2005, and will be pumping
2.5 billion cubic meters of gas a year into Shanghai and
the surrounding Yangtze River delta.
The importance of the deal was underlined by its setting
at the Great Hall of the People in Beijing. The Great
Hall of the People is normally used for important government
meetings, including party congresses, and is used to receive
foreign statesmen when they make official visits to China.
The deal was wrapped after one year of negotiations,
which is fast for a project of this scope and magnitude.
The deal puts Shell ahead of BP and Exxon, its main competitors
in China.
The Chinese government is anxious to develop and diversify
to natural gas as an alternative to oil as an energy source,
especially around the Shanghai and Yangtze River delta,
which are rapidly developing into China's industrial and
service center. Natural gas only accounts for 2 percent
of China's current power needs, but it is expected to
triple to 6 percent by 2010.
Shell's domestic partner, Sinopec, claims that the Chinese
government has given initial approval for Shell to open
500 gas stations in Jiangsu province as part of a three
year trial. If confirmed, this would be a major coup for
Shell, and mark its breakthrough into the retail sector.
Under World Trade Organization (WTO) guidelines, China
is required to allow foreign competition in the retail
market within three years of joining. China joined the
WTO in 2002.
Recently, China has had double-digit growth in automobile
sales, which has fueled demand for oil.
Significantly, the Vanguard
Group and Warren Buffett's Berkshire Hathaway have
taken investment positions in China's petroleum industry.
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