| April 15
April 15 Global oil companies are increasingly
turning to China for services and equipment, attracted by lower
costs and a newly acquired expertise that is challenging more
State-run and privately controlled Chinese rig makers, oil
and gas services and engineering firms are showing up in the
supply chain everywhere from the Middle East, the North Sea and
North America to frontier areas like Mozambique.
Chinese yards, having come from nowhere in less than a
decade, are building more jack-up rigs - the most common
offshore rig used for shallow water drilling - than all the
other yards in the world put together, data from industry
consultants IHS Petrodata shows.
Helped by strong government support, plentiful labour and an
abundant supply of raw materials like steel, China could become
a major offshore oil equipment manufacturing hub in less than 10
years, industry executives say, just like Singapore and South
Korea overtook the United States and Europe in the 1990s.
"The Chinese provide products with better value," said Scott
Darling, Hong-Kong based head of Asia oil and gas research at
JPMorgan, which hosted an investor tour of the Middle East last
month to study the competitiveness of Chinese energy equipment
and services suppliers. "And they are experts in managing supply
chains, thanks to their domestic experiences."
The rise of Chinese energy equipment manufacturers and
services firms overseas, partly fuelled by the rapid expansion
of state energy giants, is putting pressure on established
companies including Singapore oil rig makers Keppel Corp
and Sembcorp Marine, and land drilling giant
National-Oilwell Varco Inc (NOV).
To stay ahead, both Keppel and Sembcorp are increasingly
building more sophisticated equipment, an area where Chinese
firms still lack expertise.
GRAPHIC-China's offshore rig orders:
Leading the Chinese overseas expansion are state-controlled
shipyards and units of state giants China National Petroleum
Corp (CNPC), parent of PetroChina
, Sinopec Group and China National Offshore
Oil Corp (CNOOC).
Chinese companies won over half the global orders for jackup
rigs last year, up from around a third between 2008 and 2012,
data from IHS Petrodata showed.
In the area of land drilling equipment, a number of
privately run companies have emerged as major overseas players.
These include Honghua Group Ltd, the second-largest
land rig manufacturer globally with 80 percent of revenue driven
by overseas orders, and Hilong Holding Ltd, which
started its overseas foray in 2005 and is now the world's
second-largest drill pipe maker after Houston-based NOV.
"Drill pipes are crucial to oil producers. Previously their
drilling schedules were sort of dictated by just one company,
NOV," Amy Zhang, Hilong's chief strategy officer, told Reuters.
"Now clients have more options. We filled in the gaps."
CRUDE AND CLUNKY
Manufacturing energy equipment is an expensive,
labour-intensive and lengthy process, and with global energy
firms trying to cut costs, the affordability of the services
offered by Chinese firms has trumped their relative lack of
Exxon Mobil Corp, Total SA, BP PLC
and Royal Dutch Shell have all pledged to cap spending
due to pressure from their shareholders, who want more generous
payouts before cyclical oil prices start heading lower.
China's oil and petrochemical equipment exports were
averaging at around $18 billion a year in the past few years,
equivalent to the annual capital spending budget of a mid-sized
international oil company, industry data showed.
Shell is currently the biggest buyer of equipment and
services from China among its foreign rivals. Its China
procurement jumped to $3 billion last year from $1.9 billion in
2012 and $1 billion a year earlier, Shell China spokesman
Jiangtao Shi said, adding that one third of its 2013 China
procurement was earmarked for projects outside China.
Lower costs appear to be one of the main attractions.
COSCO Corp, China State Shipbuilding Corp
, China Shipbuilding Industry Corp, Yantai
CIMC Raffles and Offshore Oil Engineering Corp can
build a jack-up rig for $170-180 million, significantly lower
than the $200-220 million price tag for the same rig built in
Chinese manufacturers can also make land rigs, drilling
pipes, bits, modules, pumps and valves at up to half the price
of the same equipment made elsewhere. Prices are so competitive
that the United States in 2012 slapped hefty anti-dumping duties
on imports of Chinese seamless steel pipes, including pipes used
for oil and gas drilling.
"We export a lot of petroleum and petrochemical gears. Most
of them are crude and clunky stuff but we make money from them,"
Zhang Kang, senior consultant at Sinopec, told Reuters. "We also
try to make more sophisticated equipment."
MADE IN CHINA, FOR THE WORLD
As relative newcomers, Chinese companies remain far behind
in terms of making sophisticated tools like deepwater rigs and
hydraulic fracturing, or fracking, equipment which is used to
extract natural gas trapped in shale formations.
They also lag in building complicated petrochemical and
liquefied natural gas plants, a business still dominated by
Japanese, Korean and European firms.
The Chinese firms are rapidly gaining know-how, helped by
global firms such as Shell which is working to improve the
technical qualifications and standards of its Chinese suppliers
to make them part of its global purchasing network.
Shell has started using robot hydraulic fracturing equipment
made at its China joint venture with CNPC at projects in China
and Australia, with the aim of deploying the kit to Canada later
this year, Shell's Shi said.
"Our growing procurement spend in China is a reflection of
the progress we are making in implementing one of our strategic
priorities in China, which is taking Chinese enterprises
overseas," he said.
($1 = 6.2180 Chinese yuan)
(Editing by Miral Fahmy)