China's gas line is on the way

It is China's dream -- a 4,250 km-long, A$ 40 bn gas pipeline project that will carry gas from the far western region of Xinjiang in Central Asia to the industrial centres along the east coast. Piping natural gas from the harsh desert of the Tarim Basin to Shanghai is a massive undertaking and the economics still look a little shaky. But the central government has decreed that the West-East pipeline will go ahead, and this is still a country where what the government says, goes.

The pipeline is a centrepiece of the government's western development plan. Out in the desert in temperatures reaching the mid-40s, workers have almost completed 200 km of test pipeline, which will serve as a pilot project for the thousands of km due to be built by the end of 2004.
Lack of readily extractable oil and gas resources has forced China to look overseas for guaranteed supplies. A consortium led by Australian LNG is one of three short-listed bidders for a 25-year contract to supply A$ 750 mm of LNG annuallyto a Guangdong terminal.
But China, which is trying to reduce its reliance on heavily polluting fuels such as coal and oil, is also looking to exploit its own resources. These tend to be remote from the centres of population and industry and, even more critically, are often difficult to extract.

Sun Longde, vice-president of PetroChina's Tarim Oilfield Company, says there are gas reserves of 28.4 bn cm under the Taklimakan Desert spread across three major fields -- enough to guarantee supply for 30 years. "The Tarim field has abundant reserves of oil and gas," Mr Sun told recently. He conceded there were difficulties in extracting the resources because of the geology of the region. "All of this has made it more difficult for us to get the oil and gas in the Tarim field out because the reserves are very deep," he said. "But the returns are still very high."
Mr Sun said it would take just six to nine years to recoup the investment in the pipeline that will bisect almost the entire Chinese mainland. PetroChina, the nation's largest oil company now listed on the Hong Kong stock exchange, will put up around 50 % of the capital. Sinopec, the next biggest domestic oil company, will put up 5 %. The remainder is expected to come from a consortium of foreign investors, led by Shell Group, which is still engaged in negotiating its involvement in the project.

Peter de Wit, director of Shell Gas & Power's Asia-Pacific operations, said in Brunei that the company was committed to the project. Some analysts suggest the cost of gas delivered more than 4000 km will make the end product prohibitively expensive. Natural gas for the moment accounts for just 2.5 % of energy use, compared with almost 70 % coal -- which is both abundant and cheap, closer to the populous eastern seaboard.
China hopes to lift gas use to 10 % by 2010. But the government can virtually guarantee a core of customers at the other end of the pipeline, such as state-run power stations, even if it means further underwriting the cost of production.

Security is a concern. The Tarim field lies deep within Xinjiang, close to China's borders with Pakistan, Afghanistan and a number of former Soviet republics. China itself has concerns about the activities of separatists who challenge Beijing's rule over the ethnic Uighur population in a region once known as East Turkestan.
"We don't have to worry about the safety and security of the pipeline," says Zhang Zhiheng, Communist Party secretary of the Bayangol Mongolian Autonomous Region, where the pipeline will start its journey to Shanghai. The pipeline is going underground to escape both the extreme climate and its potential as a target for terrorist attack. But the chances of this were slight, said PetroChina's Mr Sun. "In the past 10 years there were no serious cases of sabotage."

For Bayangol, centred on the city of Korla, the project promises rapid growth and jobs, though migrant workers from other parts of China are undertaking much of the construction work. PetroChina says local ethnic minorities comprise up to 30 % of the workforce. Most appear to be confined to unskilled jobs.
Activists outside China recently lobbied ExxonMobil, a potential consortium partner of Shell, against involvement in the project because it will help the Chinese Government consolidate control over "Uighur lands" and because its involvement provides investment capital for PetroChina's exploitation of the fields. At a new gas and oil distillate-producing facility at Yaha, not one of the 82 employees is an ethnic Uighur.
Given the highly skilled nature of the work, it is more of a reflection on government policies over 50 years of Chinese rule that have made it difficult for Uighurs to rise to the top of the education system.