Beijing: China Gas Holdings and GAIL India are expected to join hands to build compressed natural gas processing plants in China.

According to Eric Leung, chief financial officer, China Gas, The venture would use GAIL''s technology to construct units that process gas into an alternative fuel to gasoline for buses and taxis in up to 10 cities initially.

China Gas has 61 natural gas projects in the country though it relies on coal and oil for 90 per cent of its energy needs and has set a target for gas to contribute 5.3 per cent of supply by 2010 from about 3 per cent currently.

Leung said that GAIL had the technology, but did not own any projects in cities in China. "We have 55 cities that we are supplying gas now in China. We will use this joint venture to start building the CNG processing plants," he said.

Burning CNG in china would cost half as much as using gas or oil fuel, Leung said.

The Hong Kong-based gas distributor signed a contract to set up a venture with Oman Oil to ship gas supplies to China from the Middle East, Leung said. China Gas and Oman Oil will invest an initial $40 million in the 50-50 venture, he said.