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The Wall Street Journal: Chevron Taps Into China’s Energy Output With Pact to Develop PetroChina Gas Field

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•  Gaining Entry: Chevron won the right to develop a natural-gas field in China’s interior, making a rare inroad by a foreign company.

•  Flying Solo: For reasons involving both independence and national pride, China has had a mixed relationship with Western oil companies over the years when it comes to inland development.

•  Growing Thirst: China’s surging energy consumption in recent years has challenged the go-it-alone approach.

August 7, 2007; Page A3

BEIJING — U.S. energy company Chevron Corp. won the right to help develop a PetroChina Co. natural-gas field in Sichuan province, people familiar with the situation said, marking a rare inroad by a foreign company into China’s onshore oil and natural-gas production.

That production has been tightly controlled by PetroChina and its main domestic rival, China Petroleum & Chemical Corp., known as Sinopec. The contract with Chevron underscores the balancing act China has played over the years with Western oil-and-gas companies, as it grapples with both a desire for independence and its increasing energy needs.

Chevron’s bid was chosen over those of Statoil ASA of Norway, France’s Total SA and Anglo-Dutch energy company Royal Dutch Shell PLC, the people said.

China’s desire to increase natural-gas output and master advanced drilling technology has led it to offer tenders in the Luojiazhai sour-gas field, as well as 12 blocks in the Tarim Basin in the northwestern Xinjiang region, to foreign companies. Sour gas contains deadly hydrogen sulfide and must be processed.
Isikeli Taureka, Chevron’s China manager, said he couldn’t comment about his company’s bid. PetroChina spokesman Zhang Anping declined to comment.

While China’s offshore energy drillers occasionally join with Western oil-and-gas companies, Western companies have a mixed history in the interior. A mixture of national pride and security concerns has often led Chinese oil-company executives to take a go-it-alone approach. Western oil companies have in the past said China steered them to less-attractive areas.

In the early 1990s Beijing still barred Western oil companies, including the forerunners of what is now Exxon Mobil Corp., from participating in the development of the Tarim Basin in the western portion of the country, then considered China’s last oil frontier. The government gradually relented as demand rose, but oil companies criticized the terms. The region never developed as expected, and many of the companies that did participate abandoned projects.

China’s surging energy consumption in recent years has challenged the go-it-alone approach. China has joined with Western companies on refining-and-petrochemical projects, the so-called downstream end of the energy business. For their part, companies have been eager to tap the growing consumer market for energy.

Luojiazhai is known for its harsh, mountainous terrain. Several serious production accidents have occurred there in recent years. In December 2003, a massive blowout occurred at a Luojiazhai gas well, resulting in a hydrogen-sulfide leak and killing 243 and injuring more than 2,000 nearby residents and workers. Gas leaked from another well in the gas field in March 2006, forcing the evacuation of thousands of people.

PetroChina issued a tender for the development of the Luojiazhai field in December. Luojiazhai has proven reserves of 2.03 trillion cubic feet of natural gas and a sulfur content of between 7.13% and 10.49%, Ma Xinhua, vice president of PetroChina’s exploration-and-production company, told an industry forum in September. Any field with a sulfur content of more than 2% is classified as high sulfur.
PetroChina’s lack of expertise in sour gas, particularly anticorrosion and reinjection technology, has stalled development of at least two more high-sulfur fields in the Sichuan Basin.

In anticipation of the development of its high-sulfur gas fields, PetroChina is building three purification plants for high-sulfur gas in Sichuan with a capacity of 840 million cubic feet a day.

Luojiazhai will be PetroChina’s third natural-gas field jointly developed with a foreign company. Last year, it signed a contract with Total for the joint exploration and production of gas in the Sulige field in the Ordos Basin in northern China’s Inner Mongolia region. PetroChina also has signed an agreement with Royal Dutch Shell to jointly explore the Changbei field in the Ordos Basin.

–Renya Peng contributed to this article.

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