Chevron's $6.4 bln China gas project pushed back again-sources

Reuters

By Chen Aizhu

BEIJING, Dec 6 (Reuters) - A $6.4 billion gas project beingbuilt by Chevron in China is facing further delays dueto disagreements with partner PetroChina over how todevelop the technically tricky fields, three industry sourcessaid.

The Chuandongbei project, the U.S. firm's largest investmentin China, is now not expected to deliver first gas until thesecond half of 2014, nearly 7 years after the firms clinched a30-year deal to produce 7.6 billion cubic metres of gas a year.

The latest setback follows a series of delays forChuandongbei, which Chevron has described as one of its largercapital projects for 2013. PetroChina initially expected firstgas to be delivered in 2010, while its parent CNPC forecast justfour months ago that production would start by end-2013.

China, the world's top energy user, but the fourth-largestconsumer of gas, is racing to unlock supplies of thecleaner-burning fuel by boosting imports and domesticexploration.

"There are some discrepancies over how to develop the fieldsbetween PetroChina and Chevron," said a Beijing-based industryofficial with knowledge of the project, a 2,000 square-kilometreblock in Sichuan basin in southwest China.

Chevron is the operator of the project and holds a 49percent stake. PetroChina holds the rest.

The Chinese government had now suspended its approval forthe development plan for the second stage of the three-stageChuandongbei project, to encourage the companies to focus ondelivering the first phase, the sources said.

Chuandongbei is a sour gas development. The natural gascontains a high level of hydrogen sulphide.

"The complexity of the project, being a high-pressure, highsulphur development that means higher operational risk andhigher standards for technical processes, also contributed tothe delays," said a second industry official.

As the only international oil firm developing high-sulphurgas in China, Chevron has imposed stringent safety standards,sources said, especially after a deadly disaster in 2003 in thesame region that forced the then-head of CNPC to quit.

A blowout in 2003 at a gas well in Chongqing municipalityowned by CNPC turned 25 sq km (10 sq miles) of farmland into alethal zone, killing 243 people and poisoning thousands as theyslept or scrambled to escape a toxic cloud of hydrogen sulphide.

However, a similar sour gas development in the samegeological area, the $10 billion Puguang project developed byPetroChina's domestic rival Sinopec Corp, took 32months from start of construction to first gas in 2010. It has adesigned annual capacity of 12 bcm.

"Sinopec being the sole owner of the project had a muchstronger sense of execution," said a third industry officialinvolved in the Puguang development. "It had top attention fromSinopec management, which pooled the best design andconstruction teams to build it."

PetroChina declined comment on the project start-up date.

Chevron said the company has not yet announced a first-gasdate. Chevron "continues to advance the construction of thefirst natural gas processing plant and development of theLuojiazhai and Gunziping natural gas fields for the Chuandongbeiproject," a spokesman said by email.

The plant and the two fields make up the first stage of theproject. Chevron said on its website in April that it expectedthe plant, which is designed for maximum production of about 2.7bcm a year to be "mechanically complete" by end-2013.

The full development will include two sour gas processingplants and five natural gas fields with gathering systems andtie-ins to the plants. An exploration well is planned for thethird quarter of 2013, Chevron said on its website.

The project, in the northeastern part of Sichuan province,has proven reserves of 176 billion cubic metres, the twocompanies have said.

Chevron is an experienced sour gas developer, and haspartnered with PetroChina to develop gas in Australia. It wonthe deal in December 2007, beating rival bidders Royal DutchShell and Total, partly because it pledgedswifter development, sources said.

By last February, Chuandongbei had cost 12.6 billion yuan($2.1 billion), local media reported. The project is Chevron'slargest upstream investment in China, where it also has a muchsmaller offshore portfolio.

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