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Shell, Unocal pull out of Chinese venture

Financial Times: Shell, Unocal pull out of Chinese venture

“Royal Dutch/Shell, the Anglo-Dutch oil group, and Unocal of the US have withdrawn from a gas exploration and development scheme in the East China Sea, the second time in two months western energy companies have walked away from a Chinese-led project.”

By Mure Dickie in Beijing and James Boxell in London

Published: September 30 2004

Royal Dutch/Shell, the Anglo-Dutch oil group, and Unocal of the US have withdrawn from a gas exploration and development scheme in the East China Sea, the second time in two months western energy companies have walked away from a Chinese-led project.

Shell and Unocal each held a 20 per cent interest in the Xihu Trough project, with the remainder divided between China National Offshore Oil Corp (CNOOC) and China Petrochemical Corporation (Sinopec), two of China’s three major oil groups.

Their withdrawal follows a decision last month by PetroChina, China’s biggest oil producer, to end two years of talks with Shell, ExxonMobil and Gazprom over their participation in an $18bn project to build a pipeline from the west of the country to Shanghai.

Shell yesterday rejected suggestions that it had fallen out with its Chinese partners over the Xihu project. It and Unocal said the decision was “commercial”.

Yves Merer, head of Shell’s Chinese exploration business, said his company would continue to work with its Chinese partners on other projects “both in China and overseas”.

Mr Merer said the decision to pull out had been made on the basis of oil reserves, development costs, availability of local infrastructure and who the gas would be sold to.

However, the companies were reported to be disappointed about the project’s progress and the level of reserves.

Shell has committed to spend $1bn in China this year, although much of this is for a chemicals project.

CNOOC said that Shell and Unocal’s withdrawal came after the Chinese and foreign partners had “failed to agree” a development plan for Xihu but their departure would have little impact on work in the area.

“We remain confident about the technical and commercial viability of the project and expect to complete the project on time,” the company said, adding that the Chunxiao field was expected to come on stream in mid-2005 and to supply gas to Eastern China “as planned”.

China’s attempt to exploit gas resources in the Xihu Trough, and particularly at its Chunxiao field, has drawn close industry attention amid growing Japanese concerns that reserves there span the “median line” between the two countries’ economic exclusion zones.

Unless CNOOC and Sinopec seek new partners, Shell and Unocal’s departure means exploitation of the Xihu Trough will become a purely Chinese affair.

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