China's US$18 billion west-to-east gas pipeline project has become bogged down indefinitely by bureaucracy and disagreements, Royal Dutch/Shell chairman Sir Philip Watts was quoted as saying yesterday.
Agreements over contract terms for the 3,900km pipeline being built by China's leading oil company PetroChina and a consortium of foreign partners led by Royal Dutch/Shell had taken "longer than expected," the Financial Times reported.
The newspaper said Watts remained optimistic a deal would be struck but quoted him as saying he "had to be very dogged about the terms expected because you're putting billions of dollars of Shell's money into it."
The delay is likely to raise concerns, first put forward by BP in 2001 when it withdrew from the deal, that Shell may be forced to settle for returns lower than its original 15 percent target, the newspaper said.
China's state media, citing sources close to the project, said last month that if a deal cannot be finalized by the end of this year then PetroChina may proceed with the project on its own.
"The negotiations are now in a stalemate," said the government mouthpeice People's Daily on Aug. 13. "The foreign side has asked the Chinese side to guarantee a 15 percent return on investment, which the Chinese side can't do since each project has its risks."
Under a framework agreement signed in July of last year, PetroChina owns half of the pipeline to pump gas from China's western Xinjiang province to its energy-hungry eastern cities.
Shell, Exxon Mobil and Russia's Gazprom each hold 15 percent, while Chinese refiner Sinopec holds a five percent stake.
The Financial Times said the project lacks customers and is faced with a postponement of its 10-year break-even point.
PetroChina, which has yet to secure a single supply contract for the gas, has been unable to agree a price for sales in China's eastern provinces.
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