PetroChina eyes 3rd west-east pipe for Russian gas

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BEIJING, Nov 20 (Reuters) PetroChina is making plans for a third west-east pipeline to carry Russian and domestic gas to the region near Beijing, a company source said, as the two countries neared a deal on import pricing after months of wrangling.

The plans are in a preliminary stage, with no on-site studies yet, but they envisage a route from the Altai area where Russia and China share a border to the Bohai Bay, the source said.

The listed unit of state-owned CNPC already operates the first west-east pipeline to the Shanghai financial hub -- where demand has outstripped supply -- and is due to start work soon on a second, feeding the country's manufacturing heartlands.

''The third line will likely be formally proposed soon after the full start of the construction of the second line early next year,'' the source said.

The trunk line would be about 6,000 kilometres (3,728 miles) long and at least 1 metre (3 ft 4 in) in diameter, the source said, although branch lines could bring the total length to 8,000 km. A highly developed pipeline network around Beijing means gas could also be fed south once it reached the Bohai area, he added.

China, the world's number-two energy consumer and keen to boost use of clean-burning gas, is pushing its firms to step up domestic exploration and courting gas-rich nations from Russia to Myanmar to secure imports.

PetroChina's second gas pipeline, which can pump 30 billion cubic metres (bcm) of gas a year, could be fed entirely by Turkmen gas after Beijing secured a deal for that level of imports, more than half national consumption last year.

PetroChina, which currently supplies 75 percent of China's gas market, is also considering building up to 45.5 bcm of gas storage, to reinforce its growing pipeline network.

PRICE HURDLE The framework study for the newest pipeline will be finished early next year, setting the stage for a feasibility study.

But work on the line would progress faster if Russia and China can agree on terms for planned sales of up to 80 bcm of gas a year, the source said.

Beijing and Moscow agreed last year to deliver the imports through two pipelines routed down either side of Mongolia, but negotiations have since dragged on because of disagreements about how much the gas should cost.

China's official Xinhua news agency reported at the weekend that the two sides had reached consensus on a pricing mechanism after months of wrangling, citing the deputy chairman of Russian monopoly gas exporter Gazprom, Alexander Medvedev.

But there has been no official announcement of a deal.

Beijing holds state-set gas prices below international market levels, which has complicated its search for imports. Gazprom had demanded the export price for China should be at least comparable with European levels, taking transportation costs into account.

Russian media have reported that China was refusing to pay more than 0 per 1,000 cubic metres, similar to current Russian domestic prices and far below the European price of around 0 per 1,000 cu m.

Beijing has been hedging against the slow-going Russian gas deal by aggressively pushing for imports from other countries, which analysts said could force Moscow to accept Beijing's price demands or watch its Asian strategy unravel.

Myanmar said in August it had agreed to sell gas from blocks with up to 8.6 trillion cubic feet (243 bcm) of recoverable reserves to China, through an as-yet unbuilt pipeline.

REUTERS BJR SSC1445

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