China already made a breakthrough in this regard in July when it started the construction of the US$8.5 billion west-to-east gas pipeline across the country, said Xu Dingming, director-general of the Industrial Development Department of the State Development Planning Commission, yesterday.

"Other proposed gas pipelines will also follow the example of the west-to-east gas pipeline," said Xu. "Overseas investors are encouraged to invest in or take controlling shares in local gas distribution networks along the trunk lines."

"There is no ceiling on the amount of shares overseas investors can take, as long as the local governments agree," added Xu, who was attending a press conference of the Paris-based International Energy Agency (IEA) to release a research report on China's gas market.

The move seems to be another bold step forward since the government opened the sector to overseas investment for the first time in April. Investment guidelines published in April stipulated that domestic companies should hold controlling stakes in gas joint ventures in large cities like Shanghai, Beijing or Guangzhou.

In addition to the 4,000-kilometre west-east pipeline, China is preparing for the construction of several long-distance gas transmission trunk lines, including a pipeline in Northeast China linking to Russia, a 700-kilometre pipeline in Central China, and another from Northwest China's Shaanxi Province to Beijing.

"Local city governments along the pipelines are negotiating with foreign companies to form local gas distribution joint ventures," said Xu. "Some have already signed the contracts."

Overseas gas companies, especially Hong Kong companies like Xin'ao Gas Holding and Hong Kong and China Gas, have already struck agreements with cities in the booming Shangdong, Jiangsu and Guangdong provinces. Analysts said those companies are eager to tap the Chinese mainland's gas distribution market, hoping to take advantage of China's rapid gas consumption growth.

The government expects to curb pollution by using more gas to replace some coal consumption, which now accounts for three-quarters of total energy consumption.

Speaking at the conference, William C. Ramsay, deputy executive director of the IEA, said China's natural gas demand is expected to increase by more than 10 per cent annually to 200 billion cubic meters a year by 2020.

To promote gas use, Ramsay called upon the Chinese Government to develop a strong and coherent national energy policy for natural gas market development.

He suggested the establishment of a specialist energy department for a uniformed energy policy.

(China Daily December 10, 2002)