Total Decides to Move Forward with Big China Gas Project

BEIJING (Dow Jones Newswires), November 10, 2008

French oil major Total SA and Chinese state oil company PetroChina Co. are close to giving the go-ahead to develop a major natural gas block in northwestern China, after exploration and evaluation lasting two and a half years.

Should the venture at the Sulige field in Inner Mongolia region go ahead, it will be the latest in a series of deals in which China has called on a Western company to help it develop geologically or technically complex gas reserves on the mainland.

In December 2007, Chevron Corp. won the right to develop the high-sulfur Chuandongbei block in southwestern China's Sichuan province, in a production-sharing pact with China National Petroleum Corp., parent of PetroChina.

"Total has completed a production plan and will give it to PetroChina soon, which in turn will then pass it to the National Development and Reform Commission for its approval," said a person familiar with the French company's China operations.

Under its original contract, Total was obliged to say by late October or early November 2008 if it wanted to push ahead to the production stage, the person said.

It is not clear yet how much money will be poured into the gas project or, once the go ahead is given by economic planner NDRC, what the schedule for commercial output will be and how much gas will be brought to market.

"We'll definitely go ahead on the development of the Sulige South field, but have not received Total's overall development plan," said a PetroChina executive.

The official said both sides are still in commercial negotiations on the investment.

Total's spokeswoman in Beijing declined to comment immediately.

The Chinese government aims to have gas account for 5.3% of the country's energy mix by 2010, almost double the 2.8% share in 2005.

To achieve this, several liquefied natural gas receiving terminals are being built on the southern and eastern coastline, and extensive offshore exploration work is underway in the East China Sea and South China Sea. In addition, onshore projects, including in difficult areas, are being expanded, and various cross-border pipeline deals with Russia, Myanmar and Central Asian countries have been or are being negotiated.

Technical Challenges  

The Sulige South block covers an area of 2,390 square kilometers.

It is part of the Sulige field, one of the most resource-rich areas in China and itself part of the giant Changqing oil and gas field.

Sulige has proven reserves of more than 534 billion cubic meters, according to a statement on CNPC's Web site.

In 2006, Total and PetroChina signed a production-sharing contract for the evaluation, development and production of natural gas in the block which at the time had proven reserves of more than 100 billion cubic meters.

"This is a highly challenging project due to the very tight nature of the gas reservoirs, at circa 3,500 meters in depth," said Total in its China Web site.

Total has proven expertise in gas an oil reserves at great depth, in areas with difficult terrain and in developing reserves with high sulfur content, the Web site said.

PetroChina says it expects gas output from the Sulige field to grow to 20 million cubic meters a day by end 2008.

Earlier this year, CNPC said output at the Changqing was expected to reach 30 million metric tons of oil equivalent by the end of 2009.

In June this year, PetroChina put China's largest natural gas processing plant into operation at the Sulige field, a unit capable of processing 5 billion cubic meters of natural gas a year. It has another smaller processing unit in operation and plans to build a third one.

The gas from the field is both piped to Beijing and used to serve local needs.

PetroChina also has an agreement with Royal Dutch Shell PLC to assess gas reservers in a nearby area.

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