Royal/Dutch Shell, Exxon-Mobil and Russia's Gazprom are happy to get a foothold in the gas fields that will feed the 4,000 kilometre pipeline, including the Kela-2 gas fields - one of the largest gas fields in China.

Although detailed economic terms have not yet been revealed, it is unprecedented for China to open its most lucrative oil and gas reserves to foreign companies in exchange for involving foreign partners in the risky project.

To date, China has offered dozens of inland blocks for foreign companies to search for oil, but most have come back with empty hands.

"Most of the pockets they offered are no more than infertile," said a Beijing-based foreign oil analyst.

"If the fields can be operated by Chinese companies, why should they invite foreign partners?"

But now things have changed. The international majors are quite comfortable with reserves at hand, since China's embryonic gas market is to more than quadruple by 2010.

The government aims to increase its gas consumption to 8 per cent in the energy mix by that time from the current 2 per cent, in an attempt to reduce air pollution.

Earlier, Sinopec agreed with Shell, BP and ExxonMobil to each operate 500 stations in booming Jiangsu, Zhejiang and Fujian provinces within three years, as part of the deal for the world's three largest oil companies to back Sinopec's overseas listing in 2000.

The deal is a big breakthrough in the tightly controlled retail refined oil product market, which China claimed foreign companies are not allowed in until 2004.

Analysts said the co-operation will be a win-win solution for both China and overseas companies - domestic companies get finance and learn the know-how from foreign partners, and foreign companies also expand with China's growing energy market - one of the fastest developing markets in the world.

In the past two years, Shell, Exxon and BP invested a combined US$2.7 billion in the initial public offering of China's largest three oil companies - PetroChina, Sinopec and China National Offshore Oil Corp.

That way, everyone got something they wanted.

Though BP pulled out from bidding on the pipeline late last year, the British giant has a 30 per cent stake in another key project - a US$616 million gas terminal in the booming southern province of Guangdong.

It is also working on securing a multi-billion dollar supply contract to the terminal. The company has invested US$3.5 billion in China ventures from chemical works to gasoline stations.

Building the pipeline is expected to help Shell and ExxonMobil catch up with rival BP. Shell's investments now total about US$1.5 billion.

Exxon spent US$1 billion buying a stake in No 2 producer China Petroleum & Chemical, or Sinopec, and is to strike a US$3.24 billion joint venture deal to expand capacity at Guangzhou's refinery.

It said it plans to invest US$4 billion throughout the next five years.

(China Daily July 5, 2002)