The agreement covers natural gas supplies, reserves and construction of natural gas pipelines.

The Chinese government forecasts domestic natural gas demand will reach 100 billion cubic meters a year by 2010 from around 65 billion cubic meters in 2005 as the country shifts to the cleaner fuel amid strong economic growth.

Chen Tonghai and Fu Chengyu, general managers of Sinopec and CNOOC respectively, signed the agreement May 17 in Beijing, said Sinopec, without elaborating on its content.

The two companies, once rivals, are likely to use their advantages to form an alliance in domestic and overseas investment in natural gas distribution, infrastructure and acquisition of overseas natural gas assets.

Sinopec, the country"s second-largest petroleum company by assets and second largest natural gas producer by output, last year made a big gas find in southwestern China. It is currently building a natural gas pipeline that will span from the country"s southwest to the eastern city of Shanghai, where CNOOC, the country"s third-largest petroleum company by assets, is currently supplying gas produced in the East China Sea to Shanghai. The two companies may need to coordinate natural gas sales and pipeline networks in the city.

CNOOC is more active than Sinopec in liquefied natural gas imports. Last year, it began operating China"s first LNG terminal, Dapeng, in the southern province of Guangdong and will start operating a second LNG terminal in the southern province of Fujian by the end of this year.

CNOOC is also purchasing spot LNG cargoes from the international market, receiving its first-ever imported spot cargo in April.

Both Sinopec and CNOOC are in talks with Iran on acquisition of LNG resources. It"s unclear whether the two companies will work together in Iran after signing the agreement.

PIN/CHINADAILY.COM.CN