Sinopec starts up Sichuan-East China gas project

BEIJING, March 30 Mon Mar 29, 2010 11:22pm EDT

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BEIJING, March 30 (Reuters) - Sinopec Corp (0386.HK)(SNP.N) (600028.SS) said it has completed the construction and started operating its Sichuan-to-East China gas project which is expected to produce 4 billion cubic metres (bcm) of gas this year.

The second-largest oil and gas producer in China had said operations would begin from October last year, but gas shipments were delayed, due to what some Chinese media said were disputes over pricing. Sinopec said they involved technical issues.

The start-up of the project would help ease recurring gas shortages in east China and could curb the need for imported gas in the short term, but analysts said that appetite for clean fuel from abroad would keep growing in the world's third-largest economy in the long term.

The project, including gas production at China's second-largest gas field Puguang and shipment of the fuel to eastern China, cost 62.7 billion yuan ($9.2 billion).

The trunk line, with a capacity of 12 bcm per year, spans nearly 1,700 kilometres from landlocked southwestern Sichuan province to more prosperous but energy-thirsty east China including the financial hub of Shanghai.

Puguang has proven gas reserves of 356 bcm, only second to 534 bcm of deposits at Sulige gas field in north China that is run by PetroChina (0857.HK)(601857.SS), data certified by the government has shown.

Sinopec said it has found a total of 451.8 bcm of proven deposits at Puguang and neighbouring regions, enough for more than 20 years of stable production based on Puguang's current production capacity of 10.5 bcm.

China's National Development and Reform Commission in June last year set the ex-factory price for Puguang gas at 1.28 yuan a cubic metre, and the cost would amount to some 2 yuan ($0.293) a cubic metre when it arrives in Shanghai. [ID:nPEK38149]

The cost in Shanghai would be more than 10 percent higher than the average price of China's LNG imports in 2009, Reuters calculations show. ($1=6.826 YUAN) (Reporting by Jim Bai and Chen Aizhu; Editing by Jacqueline Wong)

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