Chevron's (CVX) $6.4 Billion Gas Project In China Delayed Again Due To Disagreement With Partner PetroChina

Chevron Corp. (NYSE:CVX) is struggling to come to terms with Chinese partner PetroChina Company Limited (NYSE:PTR), once again delaying the $6.4 billion Chuandongbei gas project the two companies are building in the Sichuan province.

PetroChina initially expected gas to be delivered in 2010, but the latest setback puts first gas delivery to the second half of 2014, almost seven years after the firms inked a 30-year deal to produce 7.6 billion cubic meters of gas a year. PetroChina’s parent company CNPC just four months ago said production would start by the end of 2013, Reuters reported on Friday.

"There are some discrepancies over how to develop the fields between PetroChina and Chevron," said a Beijing-based industry official with knowledge of the project, a 2,000 square-kilometer block in Sichuan basin in southwest China.

The project is Chevron’s largest investment in China to date. The U.S. firm has a 49 percent stake while PetroChina holds the rest.

The Chinese government has suspended approval for the second stage of the three-stage project to encourage the companies to come to terms and focus on delivering the first gas, but the field’s natural gas contains a high level of hydrogen sulphide and presents a challenge.

"The complexity of the project, being a high-pressure, high sulphur development that means higher operational risk and higher standards for technical processes, also contributed to the delays," said a second industry official, according to Reuters.

Chevron’s insistence on vigilance is well-placed. In 2003, a blowout at a CNPC gas well in the same region killed 243 people and poisoned thousands as they tried to escape a toxic cloud of hydrogen sulphide. The then-head of CNPC was forced to resign.

PetroChina’s domestic rival Sinopec Corp did manage to develop a similar gas field in the same area in just 32 months from start of construction to first gas in 2010. The $10 billion Puguang project has a designed annual capacity of 12 bcm.

"Sinopec being the sole owner of the project had a much stronger sense of execution," said a third industry official, Reuters reported. "It had top attention from Sinopec management, which pooled the best design and construction teams to build it."