China's largest oil and gas producer, PetroChina and Royal Dutch/Shell Group, Europe's second-largest oil company, yesterday announced the start of their partnership in developing the Changbei natural gas field in Northwest China's Ordos Basin.

According to their agreement, Shell will be the operator of the project. The two partners yesterday signed three drilling contracts and two letters of intent for the engineering, procurement and construction contracts.

The signing marks the debut of the largest onshore exploration and production project between Chinese and foreign companies. The scheme is expected to start delivering 1.5 billion cubic metres of natural gas a year to consumers in Beijing, Shandong, Hebei and Tianjin by 2007.

The annual gas delivery capacity is to double to 3 billion cubic metres by 2008, said company sources. According to a Reuters report, the Changbei gas field holds 70 billion cubic metres of gas reserves.

Costing US$600 million, the project includes the construction of central processing facilities and inter-field pipelines as well as the drilling of about 50 wells within 10 years.

Over the 20 years of the project's lifetime, Shell will be entitled to own half of the gas production, according to the agreement with PetroChina.

Shell has shown an intense interest in developing China's gas sector, despite a failure to invest in PetroChina's West-to-East gas pipeline megaproject.

It recently formed a US$91 million joint venture with the Hangzhou Gas (Group) to operate and manage a high-pressure gas pipeline system in Hangzhou, possibly paving the way for other investments, including liquefied natural gas (LNG) terminals, in east China, said analysts.

Speaking at the FORTUNE Global forum in Beijing yesterday, Linda Cook, chief executive of Shell Gas & Power, said: "We believe natural gas will play an important role in the future portfolio of energies for China ... and the government are working through the State-owned enterprises and in other ways to promote natural gas."

(China Daily 05/18/2005 page10)