PetroChina, CNPC to Invest CNY16 Billion in 2nd W-E Pipeline

Copyright (c) 2007 Dow Jones & Company, Inc.

PetroChina Co. (PTR) and its state-owned parent company plan to invest an additional CNY16 billion ($2.2 billion) into an existing joint venture, which will be in charge of building China's second West-East natural gas pipeline.

The planned pipeline will largely source natural gas from Turkmenistan and Kazakhstan in Central Asia and supply affluent Chinese cities in Guangdong and possibly Hong Kong, where demand for the cleaner fuel is robust.

PetroChina, China's biggest listed oil company by capacity and market capitalization, said in a statement late Thursday that it and China National Petroleum Corp. plan to invest CNY8 billion each in CNPC Exploration and Development Co., a 50-50 joint venture.

The new investment will be spent on constructing the first segment of the pipeline between Turkmenistan and Khorgos in China's Xinjiang region, passing through Uzbekistan and Kazakhstan, the statement said.

This segment will be about 1,818 kilometers long and will require an investment of US$7.31 billion, it said.

Gordon Kwan, an analyst at CLSA, said the $8 billion investment "wasn't significant relative to PetroChina's overall capital spending."

"The new pipeline is positive to the company, as it gives synergy to the company's existing gas projects in Central Asia," he added. "I guess the company may get more new gas projects along the pipeline in future."

At 0400 GMT, PetroChina shares in Hong Kong were down 1.1% at HK$13.88.

PetroChina said in August the whole pipeline will be about 8,000 kilometers long and require a total investment of about CNY102 billion (US$13.63 billion).

The pipeline's designed annual gas transmission capacity will be 30 billion cubic meters, and can be increased to 40 billion cubic meters.

The second segment of the pipeline will run through the Chinese cities of Erdos, Urumqi, Lanzhou, Xian, Guangzhou and possibly Hong Kong.

PetroChina plans to start building the pipeline next year, and targets finishing construction by 2010.

PetroChina earlier this year signed a production sharing contract for a natural gas field in Turkmenistan. It expects the Turkmenistan gas field to produce 13 billion cubic meters of natural gas a year. It declined to say how much it is paying for the contract.

PetroChina also said earlier it plans to buy another 17 billion cubic meters of natural gas a year from Turkmenistan for a period of 30 years. It didn't elaborate.

Through CNPC E&D, PetroChina and CNPC now jointly own a controlling stake in PetroKazakhstan Inc. (PKZ) and some other gas fields in Kazakhstan.

Last month, PetroChina held an initial marketing conference in Guangzhou with potential gas buyers in southern China, including Guangdong and Hong Kong, a person close to the situation said.

Hong Kong power suppliers, including CLP Holdings Ltd. (0002.HK), are among the potential buyers, the person said.

CNPC E&D has operations in Algeria, Kazakhstan, Oman, Niger, Chad, Canada, Azerbaijan, Ecuador, Peru, Venezuela, China and Indonesia.

The first West-East pipeline in China, also built by PetroChina, runs from Xinjiang to Shanghai.

Copyright (c) 2007 Dow Jones & Company, Inc.