THE London-based Financial Times reported on 31 August that one of Shell’s most important projects, the 3,900-km gas pipeline in China, is delayed indefinitely due to disagreement, according to Sir Philip Watts, chairman of the UK-based oil company. He is reported to have said there was no end in sight for discussions over the west-east pipeline. The delay is likely to increase concern over whether Shell may be pushed to settle for returns lower than the group’s 15% target to gain a greater toehold in the world’s fastest-growing market.
In the interview with the FT, Sir Philip said a deal would be struck, but said: “You have to be very dogged about the terms you expect because you’re putting billions of dollars of Shell’s money into it.” In July last year Shell, ExxonMobil, and Gazprom signed a framework agreement with PetroChina,but have since been struggling to complete the contract.
The pipeline, from Xinjiang to Shanghai, is one of the Chinese government’s biggest projects, and a key part of its campaign to shift the country’s consumption from polluting coal to natural gas. Shell and ExxonMobil are vital partners for PetroChina, which does not have the technology or the knowledge needed for the operation. But the $18-billion project lacks customers, according to the report, and faces the threat of a postponement of its 10-year break-even point. PetroChina has been unable to agree a price at which the gas is to be sold in eastern provinces, in particular to industrial customers such as power plants, which are expected to make up half the buyers.