to Go Global Strategies of Chinese Offshore Oil Engineering Companies

Transcription

1 Strategies of Chinese Offshore Oil Engineering Companies to Go Global Yang Yun, Mi Wenxue (Offshore Oil Engineering Co., Ltd.) Abstract: Alang with big drop of oil prices, offshore oil engineering market demand is witnessing profound changes. This brings rare opportunities while huge challenges for Chinese offshore oil engineering enterprises. Chinese offshore oil engineering enterprises have made rapid development in recent years, but they still have a certain gap with European and American competitors. Only by answering the time s call for developmentof international market and having the courage to participate in international competition could Chinese offshore oil engineering enterprises grow strong unceasingly. Key words: Offshore oil engineering; Service provider; International cooperation; Competition As economic globalization is deepening,the globalization market structure of offshore oil engineering industry has basically come into being, including market globalization and globalization. Analysis on world offshore oil engineering market Analysis on global offshore oil engineering market from 2015 to 2020 According to most of market observers, conventional offshore shallow-water oil and gas field construction projects still concentrate in Southeast Asia, Middle East, West Africa, Northwest Europe, and etc from 2015 to 2020, and there are still more than 800 projects is under planning in the future. Southeast Asia is dominated by shallow-water marginal oilfield development of small platforms, Middle East is by shallow-water oilfield development of large platforms, and North Sea, Gulf of Mexico and West Africa are by oilfield development of large platforms and floating structures. From the perspective of product category, floating production facilities, deepwater oil and gas field development, onshore modularization engineering, and platforms modification & decommissioning market are still the focus from 2015 to According to the statistics of DW Company, the investmentof floating production system (FPS) will be up to 81 billion US dollars in next five years, among which floating production storage offloading (FPSO) may take up 81% of total market investment which is mainly in Latin America, Asia and Africa. Markets in Latin America and Africa are characterized by more deepwater projects like large or super-large FPSOs and underwater production system, while the offshore oil and gas fields in Southeast Asia vary a lot from shallow water to deep water, dominated by small to medium FPSOs or FPUs. In terms of deepwater oil engineering market, DW Company predicts that world investment will total 210 billion US dollars in next five years. Among this, the expenditure of deepwater oil engineering in Africa, Latin America, and North America will be 173 billion US dollars, while that of drilling and completion will account for 35% of 17

2 MARKET POTENTIAL total. As to modularization engineering, modularization methodcould greatly reduce the local workload so that to decrease the total cost effectively. Therefore, it may be widely applied in the areas of higher labor cost, especially in Australia, Canada, Russia, and so on. It is predicted by DW Company that global LNG development cost will top 259 billion US dollars between 2014 and 2019, up 88% than the last five years. Australia requires a lot on environmental protection and has higher labor cost, so the development modal for most LNG projects is dominated by offshore production platform and onshore modularization plant. Canada is also faced with these issues, so the development of LNG and oil sands projects can be adopted with modularization. The prefabricated modules can be transported to Canada for integrated installation after being built and completed abroad. Accordingly, local workload and labor cost could be reduced a lot. Russia will have a lot of large gas fields for development in the future. However, these gas fields could not be built in the field due to cold environment. Hence modularization mode is used a lot. The markets of platforms modification and decommissioning are mainly distributed in North Sea, Gulf of Mexico, Middle East, and Southeast Asia, etc. And the European and American markets like North Sea and Gulf of Mexico feature in higher cost and strict requirements, so offshore facilities Word-class COOEC Qingdao Fabrication Yard. 18 have to be removed step by step without affecting existing production to reduce cost. A great number of facilities are being thrown aside in Middle East and Southeast Asia. In Thailand sea area, more than 300 platforms in 2 oilfields are to be discarded. As compared to European and American countries, the operation criteria in these regions are lower and operational water depth is less. It is more applicable for Chinese offshore engineering companies to participate. Major offshore engineering worldwide Major offshore engineering in the world can be classified into two categories, the first is global integrated, and the second is professional. Integrated mainly offer one-stop turnkey and each has its advantages. For instance, Technip Company is a global leader in front engineering and subseabusiness, Saipem Company keeps ahead in offshore installation, Offshore Oil Engineering Co., Ltd. (Hereafter refers as COOEC ) is equipped with worldclass facilities which makes large topsides fabrication and float-over installation competitive, and Mcdermott Company is also outstanding in equipment sources and offshore installation.

3 Table 1 World major offshore engineering and their characteristics Category Company Characteristics Global integrated Professional Construction Floating structure Modular construction Deepwater oil and gas field development and underwater oil engineering Technip Saipem COOEC Mcdermott Samsung, Hyundai KBR, GUSTO, Worleyparsons SBM, MODEC KEPPEL Corporations China Shipbuilding Industry JGC, CB&I, Fluor Pacific Heavy Industries Co., Ltd., Jutal Offshore Oil Services Limited Subsea 7 Aker Solutions Market spreading all over the world, high ability in turnkey, and outstanding in design and subseabusiness Market spreading all over the world and outstanding in offshore installation Mainly activein China and Southeast Asia, high-quality equipment, and outstanding in building and installation of large topsidesand modules Strong power in equipment and prominent in offshore installation business Strong power in all kinds of ships and high-end equipment like large blocks, modular, FPSO and FLNG, particularly advanced in FLNG building Advanced technology and outstanding in design and acquisition as well as turnkey FPSO turnkey operation as main business, and equipped with single point core technology Leading integrated design and manufacturing of floating facilities with high production efficiency. Advanced technology, and on top of offshore engineering ships and FPSO design Rapid development, big size, high productivity, abundant yardsand human resources, and outstanding capacity in drilling ships and FPSO, etc. High ability in onshore modular engineering design and turnkey management Rapid development, abundant yardsand human resources High ability in subseaengineering turnkey, and outstanding capacity in flexible pipes construction High ability in design,procurement and turnkey management Professional are those prominent in a domain of engineering. For example, Samsung and Hyundai are advanced in large modulesand high-end offshore engineering equipment manufacturing, SBM Company owns single point core technology, and Fluor Company is competitive in onshore facilities design, procurement and project management (Table 1). Different project execution modes in China and abroad The modes for project execution vary a lot between China and foreign countries as follows: (1) Work scope management. It may bring huge risks during execution of the project if work scope is not clear. The work scope of projects extends may result in final failure in execution. Sometimes, the work scope of domestic projects is not so clear and a uniform format is used for contracts in general. No strict distinction is made for different projects. Comparatively, foreign projects have strict definitions about project mode in contracts. At bid stage, the scope of work is clarified and defined in contracts in details. At the stage of execution, contracts have to be performed rigorously. Contracts are the sole of foreign projects management. (2) Schedule control. Both domestic and foreign 19

4 projects requires on time delivery. On some occasions, domestic projects may be rushed in schedule at the cost of quality and safety, because clients usually do not compensate for contractor s acceleration cost. However, international projects schedule will be strictly followed, once any deviation required by client, compensation will be provided as well, therefore project quality and safety could be guaranteed. (3) Cost management. Cost control of domestic projects is commonly up to clients budget, which is mainly influenced by controllable material cost, labor cost, transportation costand other internal factors and rarely affected by external factors so that cost control is much easier. In addition to internal factors mentioned above, the cost of foreign projects will also be affected by external factors, such as personnel visa, materials and equipment customs clearance, local content requirement, local labor policy, exchange rate, and natural environment, etc. These factors will exert great effect on the cost of projects if they cannot be handled well. Thereby, fine management has to be done for foreign projects management. Records have to be made for schedule delay caused by non-selfreasons and revision of contracts must be proposed to clients without delay. Generally, international clients will compensate for contractors rationally in terms of revision and demand out of contracts. (4) QSHE management. QHSE requirements between domestic and foreign projects have tiny difference, but domestic projects management personnel have weaker sense of management and clients requirements are lower in general. But owners of foreign projects clarify requirements on QHSE in contracts and execute relentlessly at the stage of execution based on contracts. Meanwhile, international norms are generally employed by foreign projects on quality requirements. Owners will execute relentlessly according to projects if there is deviation during execution. If the deviation is significant, corresponding punishment will be made according to contracts. If this problem cannot be dealt with properly, the company will incur huge losses. Current state of China offshore oil engineering business Through more than 30 years of development, Chinese offshore oil engineering companies have already grasped technologies of exploring and developing offshore oil & gas field within a water depth of 300m, and completed more than 90% of domestic offshore oil and gas field construction projects, and formed a batch of powerful firms in all production domains. Taking the domestically largest general contractor of offshore oil engineering- COOEC- as an example, it completed building of 156 jackets from 2001 to 2014, rising from 3 in 2001 to 23 in 2012; installed 188 offshore jackets, rising from 5 in 2001 to 29 in 2014; built 188 topsides at an annual rate of 28 at most; installed 179 topsides with 30 per year at best; lain 3589 kilometers of submarine pipelines with annual rate of 718 kilometers at most; and fabricated more than 1.62 million tons of steel structures of which the year of 2014 reached a peak of 249,000 tons (Table 2). Chinese offshore oil engineering companies have witnessed rapid development and been equipped with their own competiveness in all domains in the past few years. Table 2 Major offshore oil engineering companies in China Construction Offshore installation Underwater engineering technology Category Fixed platforms Floating structures Drilling ships Modularization Installation of structures and laying of marine pipelines Underwater connection system, underwater manifold, etc. Company COOEC, Shenzhen Chiwan Sembawang Engineering Co., Ltd., Jutal Offshore Oil Services Limited, Shengli Petroleum Administrative Bureau Dalian Shipbuilding Industy Co., Ltd., Yantai CIMC Raffles Offshore Limited, COSCO Shipyard Group Co., Ltd,Shanghai Waigaoqiao Shipbuilding Co., Ltd. COOEC,Dalian Shipbuilding Industy Co., Ltd., China Merchants Heavy Industry Co., Ltd.,Yantai CIMC Raffles Offshore Limited, Shanghai Zhenhua Heavy Industries Co., Ltd. COOEC, BOMESC, Jutal Offshore Oil Services Limited, Pacific Heavy Industries Co., Ltd., Shanghai Zhenhua Heavy Industries Co., Ltd. COOEC,Yantai Salvage, Guangzhou Salvage, Shanghai Salvage, Hilong Group of Companies, Neptune Offshore Engineering Development Co., LTD COOEC, CNPC Baoji Oilfield Machinery Co., Ltd., Kingdream Public Limited Company, Jutal Offshore Oil Services Limited, Wuchang Shipbuilding Industry Group Co., Ltd. 20

5 Engineering design capabilities Could independently provide one stop solutions to offshore oil and gas fields development within 300 meters water depth; Could independently fulfill conventional FPSO design; Could independently design conventional subsea system of m, subsea equipment and structures (excluding Christmas trees), and joint-design of deeper water products; Successfully explored and developed tri-pod and bee marginal oilfield development system. Conducting special research on marginal oilfield development techniques; Established technical system for assessment on platform life extension, and equipped with ability in assessing platform removal schemes; Had the capability in dealing with spanning and climbing under complicated geological conditions and designing subsea pipelines in complicated subsea conditions at the water depth of 1500 meters. Onshore fabrication capabilities Invested modern yards strategically located in Tanggu, Qingdao, Penglai and Zhuhai, with a total area of 20million square kilometers which make it possible for Chinese companies to provide s from shallow to deep water and meet various fabrication requirement. They are equipped with ability in constructing large equipment for all water depths and run ahead of peers in construction of ton-plus jacket and topsides. They have been recognized in the ability of large onshore modules fabrication internationally. Russian Artic YAMAL Project is generally conducted by domestic construction yards like core modules, pipe assembled racks and units and other structures. They have mastered accurate weighing techniques for tonnnage super-large offshore structures. Offshore installation capabilities China has globally advanced offshore construction fleet resources, including the 3000m deep water pipe laying HYSY201, 7500T derrick lay barge Lanjing 3000m deep water multi-function vessel HYSY 289, and tonnage semi-submersible transportation vessel HYSY 278, etc. Single lift capacity reaches 7500 tons at highest, and the capacity of jackets launching reaches tons. The companies are capable of world class float-over installation, such as float-over installation of large size topsides over tons, DP float-over installation over 10 thousand tons, float-over installation in high and low position. They have been equipped with the capacity in deep water S-Lay subsea pipelines laying, subsea structures installation, dragging and landing, tie-inpipelines installation, and risers installation, with annual pipeline laying capacity exceeding 700 kilometers and maxium operation water depth of 1500 meters. Competitive advantages and disadvantages of Chinese offshore engineering companies Generally speaking, Chinese firms own their own competitiveness as compared to foreign peers:1they have comparative advantages in construction schedule and could ensure delivery deadline to a greater degree; 2All engineering firms have strong sense of participating international competition and have already been widely recognized by international oil companies and engineering companies, of which the products tend to be high-ends; 3As an important component of Made in China, offshore engineering industry gets substantial support from Chinese government, and China s source of financing becomes more diversified and smoother aided by the Belt and Road and other policies. At the same time, Chinese companies also have shortcomings, such as shortage of international talents, not familiar with international normal doings, technical criteria and global resources, lack of experience in international projects management and operation, still in the mid-low-end domains of manufacturing, weak abilities in integrated engineering, procurement and fabrication, weak abilities in international procurement, and also are restricted by local content requirement of foreign countries. Strategies of Chinese offshore engineering companies to go global As international oil prices drop considerably, demand of international offshore oil engineering market undergoes profound changes. The first is that oil companies requires much more strongly onlow cost, and pricesis becoming the most important factor during international competition; the second is that the high-price products owing to high oil prices are returning to simplified and low-cost ones; the third is that the already matured offshore shallow-water oil and gas field development is still the mainstream, while deep-water oil and gas field development and marginal oilfield development 21

6 of lower profits are faced with huge challenges; the fourth is the pursue of oil companies for low cost is gradually breaking trade barrier, which makes emerging engineering companies have opportunities to participate in international competition; the fifth is insufficient capitals of oil companies need support from financial ; the sixth is that it is evitable for European and American highend companies to seek cooperation with those in lowercost areas. So, how should Chinese firms take advantages and are more involved in international competition? Firstly, they should seize the requirement of international oil companies on low cost and extend market in construction domain; secondly, they should appropriately employ international personnel and enhance their globalization; thirdly, they should set rigid requirement and upgrade management on the basis of international criteria. And forone hand, they should give full play to the win-win strategy and broaden market for international cooperation; on the other hand, they should adopt long-term strategic agreements to find more qualified to enhance international procurement capability, to foster domestic suppliers to explore international market together, and to enhance EPCI competitiveness. Finally, they should cooperate with domestic financial enterprises to be more competitive by financing. According to different characters of all international markets, Chinese offshore engineering companies should have different competitive strategies. For Southeast Asia Southeast Asia market has huge investment needs in future. In terms of project contracting, Japanese and South Korean emerging enterprises mainly occupy midhigh-end products manufacturing market, while other local companies take mid-low market. Compared with them, Chinese firms have higher management level and production efficiency, more complete auxiliary facilities, and richer resources in yards, labor, and equipment materials. So the competitive strategy should focus on general contracting, gradually enter into high-end market, lay emphasis on marginal oil and gas fields and platform removal. Meanwhile, Chinese firms should improve internal production efficiency and reduce cost, fully integrate local and surrounding construction, installation and human resources, vigorously upgrade domestic materials and equipment as well as technology, and enhance general contracting capacity in EPCI. For Middle East The market in Middle East is more open and major in large shallow-water projects. However, local enterprises have insufficient productivity. Comparatively, European and American companies like PETROFAC and McDermott perform outstandingly there. As compared to them, Chinese companies have such disadvantages as long transportation and operation in different sites. Therefore, it gives priority to general contracting in the future, mainly extending the markets of large platform construction, offshore installation,maintenance and decommissioning. At the same time, they should further improve productivity and reduce cost, enhance local shore-based support, and cooperate with local partners to develop operation supporting system in foreign lands. For South America and West Africa The markets in South America and West Africa will invest a lot in deep water and floating structure in the future, but some countries requires higher on Local Content. European and American, Japanese and South Korean companies perform well locally. However, local enterprises are inefficient, so they choose to cooperate with international companies. As compared to Euro- American, Japanese and South Korean peers, Chinese firms feature in lower cost but high management and production efficiency. But meanwhile, they are faced with the problems of long-distance transportation and operation in foreign lands, higher demand on Local Content, and lack of core technology in deep water oil and gas field development and underwater oil engineering, etc. Thus, the competitive strategy should focus on floating structure, deep water oil and gas field development, and subsea engineering market, cooperate with local firms or increase local investment to enhance localization, and integrate internal and external sources to form the industrial chain of FPSO general contracting and operation and maintenance. In conclusion, in the era of weak oil prices, Chinese offshore oil engineering companies should seize the new opportunities in global oil and gas industry change, take active part in international cooperation and competition, go global more purposefully, and forge a new brand for made-in-china. References [1] Douglas-Westwood.World Floating Production Market Forecast , [2] Douglas-Westwood.World LNG Market Forecast ,