Why Chevron’s Huge China Project Has New Delays
Nearly four years after Chevron (NYSE:CVX) expected to be producing gas in China with PetroChina (NYSE:PTR), the pair’s huge Chuandongbei investment is still not bearing fruit. According to Reuters, disagreements between the energy giants have forced production dates back until summer of 2014 at the earliest while the Chinese government is holding out on appproval for later stages.
Sources who relayed information to Reuters about the latest delay cited the difficulty in turning the “sour gas” fields of Chuandongbei into usable energy. Sour gas is a type of natural gas that contains high levels of sulphur, making extraction and processing of the materials a unique skill even among leading energy providers.
Chevron is making a move no outside company has matched with its sour gas project in China. According to Reuters, the alliance with PetroChina made the U.S. corporation the only foreign business taking a chance with the sulphur-rich material, though the two collaborated on a similar project in Australia in 2007. Tbe latest complications in Chuandongbei have caught the attention of Chinese government officials.
According to Reuters, government approval for the second phase of the Chuandongbei project’s development has been withdrawn until the two companies can reach the point where they are producing gas with the first phase. Elsewhere, Chevron’s legal troubles in Ecuador continue to be a cause of concern for the oil and gas giant.
Bloomberg reported in late November how Chevron may not have an advantage in a case that depends on RICO statutes to undermine the arguments by plaintiffs in the company’s wrongdoings. The possible multi-billion dollar fine Chevron would face if found liable for polluting Ecuadorian land and water continues to hang over the company.
In the meantime, there is no formal word on when the Chuandongbei project will produce its first shipment of gas. That project is worth over $6 billion. PetroChina and Chevron have every reason to find compromise and find a way to deliver the gas China is waiting to use.