PetroChina, the nation's largest oil and gas producer, said it is optimistic about market prospects for the west-east pipeline project, as the demand in major targetted areas is larger than expected.

So far, 35 users in Henan, Anhui, Jiangsu and Zhejiang provinces, and Shanghai have promised a combined gas consumption of 2.1 billion cubic metres for the year 2004, the first year when the project will start commercial operation, said Huang Weihe, head of PetroChina's natural gas and pipeline branch company.

The consumption could make the delivery of the gas economically feasible, Huang said.

The US$5.2 billion project is expected to transport natural gas annually from remote Northwest China's Xinjiang Uygur Autonomous Region to Shanghai, as part of the government's strategy to promote the economic development of impoverished western regions.

PetroChina has signed initial gas supply contracts with 19 of the 35 users, including a large petrochemical joint venture with Germany's BASF.

The legal take-or-pay contracts are expected to be concluded as soon as the central government announces the price package for the gas, Huang said.

"The market demand is more than satisfactory," Huang said.

He expected the gas consumption to reach 12 billion cubic metres by 2009, which is the limit for the project to break even.

Earlier this month, PetroChina started trial runs of the east section of the pipeline.

The east section runs 1,485 kilometres from Jingbian in Northwest China's Shaanxi Province, winding through six provinces to end in Shanghai.

PetroChina Chairman Ma Fucai said the commercial gas supply of the section is expected to start on January 1.

The eastern section will be supplied by the Changqing gas field in Shaanxi Province until 2005. By then, the 2,525-kilometre-long western section linking Tarim Basin in Xinjiang to Jingbian in Shaanxi will be completed and start to supply gas to Shanghai.

Huang said the reserves of Changqing gas field, one of the nation's largest gas fields, is large enough to meet the market demand for the pipeline before the western section is completed.

As of July of this year, Changqing had proven natural gas reserves of 751 billion cubic metres. It is able to produce 4.8 billion cubic metres of natural gas a year.

As for Tarim Basin, Huang said the area had proven natural gas reserves of 390 billion cubic metres by the end of last year.

It is now able to pump 12 billion cubic metres of gas annually for 30 years.

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