The 900km pipeline is expected to run from Yulin city in the gas-rich Shaan-Gan-Ning basin to the eastern cities of Beijing and Tianjin, via Shanxi and Hebei provinces with plans to extend it to the eastern province of Shandong.
Under terms of the agreement, gas consumption in the seven cities would be 183 million cubic metres (bcm) in the first year of its operation and soar to 2.068 bcm in the fifth year.
PetroChina said the aim of the letter of intent was help it secure markets ahead of submitting a pre-feasibility study of the pipeline to the government.
The pipeline, which is PetroChina's second one from Shaanxi to Beijing, is scheduled to be completed by the end of 2004 and is expected to transport about 8 bcm of gas a year to meet soaring demand for clean energy in China's capital ahead of the 2008 Olympics.
The first Shaanxi-Beijing pipeline, which began operation in 1997, has a maximum capacity of 3 bcm of gas a year and last year transported 1.885 bcm of natural gas to Beijing. Shaan-Gan-Ning, one of China's largest gas discoveries, has recoverable gas reserves of over 500 bcm.
