PetroChina Signs Gas Supply Deal in Shanxi Province

PetroChina has signed a Letter of Intent in Beijing with Shanxi Provincial Natural Gas Company Limited for supply of natural gas through the proposed second Shaanxi-Beijing gas pipeline. The Letter of Intent will cover seven prefectures and cities in Shanxi Province.

Mr. Shi Xingquan, Vice President of PetroChina and Mr. Niu Renliang, Vice Governor of Shanxi Province attended the signing ceremony. The first Shaanxi-Beijing Gas Pipeline was completed in 1997, and since then it has been providing a safe and stable gas supply to the Beijing, Tianjin and Hebei areas. Since 1999, PetroChina has constructed three intermediate gas pump stations and two underground gas storage facilities to meet the growth of gas consumption in these areas and the peak demand in winter and summer. The gas market was further developed in these areas, achieving economic and social benefits.

In view of the rapid economic growth, PetroChina plans to build a second Shaanxi-Beijing gas pipeline to meet the increasing demand for natural gas. PetroChina, after years of exploration, discovered rich proven natural gas reserves in the Shaanxi, Gansu and Ninxia areas which can provide reliable and stable resources for the gas pipeline in the long term.

To lay a solid foundation for the economics of the pipeline investment program, PetroChina is now developing the natural gas market along the pipeline. Full understanding of the gas demand and its distribution will help the Company formulate its investment program and facilitate the approval of the project by the state.

PetroChina and potential users in the relevant regions have jointly conducted an in-depth investigation of the natural gas markets in the downstream cities along the pipeline and have reached consensus on the scale of consumption, annual consumption volume, gas supply pressure and gas prices. The Letter of Intent not only met the approval requirement, but also laid a good foundation for the negotiation and signing of take or pay contracts in the future. The Letter of Intent signed with the Shanxi Provincial Government demonstrates the great market potential for the second Shaanxi-Beijing gas pipeline.

The proposed second Shaanxi-Beijing gas pipeline will start from Yulin, Shaanxi and stretch 300 kilometers from west to east in Shanxi Province after crossing the Yellow River. Three sub-transmission stations in Luliang, Yangqu and Yangquan will be built to supply gas to seven cities and prefectures in Shanxi. The expected gas consumption in Shanxi in the first year of operation will amount to 183 million cubic meters and increase to 2.068 billion cubic meters in the fifth year. The pipeline will be extended to Hebei, Beijing, Tianjin and eventually reach Shandong. Currently, the preliminary work and plan-optimizing for the extended pipeline is underway.

PetroChina is a listed international and vertically integrated oil company. With natural gas as one of its core businesses, PetroChina takes a dominant position in China in terms of natural gas resources, pipeline transmission and sales volume. Shanxi is a large coal producing province, but is heavily polluted due to coal-burning.

The Shanxi Provincial Government welcomes the signing of the Letter of Intent for its importance in the implementation of the government's environmental policy and plans to use natural gas as clean energy in the Tenth Five-Year Plan period. The Shanxi Provincial Government will fully support and assist the construction of the second Shaanxi-Beijing gas pipeline. It is considered a win-win arrangement for the Company and Shanxi Province.

Shanxi Province is currently accelerating the planning and construction of the pipeline branches within the province and gas consumption projects to match the progress of the second Shaanxi-Beijing gas pipeline.