Offshore Oil Equipment: Or Next Made in China

“The gold diggers may get rich or they may go bankrupt, but those who sell jeans and tools to the gold diggers tend to make a fortune.” However, for the CNOOC equipment manufacturing industry that produces “tools” for itself, the story may not be It's simple.

Text | Journalist Li Yi

In the lobby of China National Offshore Oil Corporation headquarters, various advertisement films on deep-sea oil exploration are repeatedly displayed in the huge hanging screen. From the 4,000-year-old cliffs of Gaolan Island in Zhuhai, which is now known as CNOOC's deep-sea marine engineering equipment manufacturing base, to the slogan of “achieving a leapfrog development in deepwater equipment,” a variety of magnificent marine oil equipment And the decomposing explanatory diagrams appear on the screen one by one, causing many people who come and go to stop to watch.

With the depletion of land-based oil and gas resources, China has greatly strengthened its efforts to develop the South China Sea, especially the deep sea waters. However, China currently does not have the technology and equipment to conduct oil and gas exploration and production in waters with a depth of 500-2000 meters. Compared with Europe and the United States, the R&D and design level of Chinese companies is not at the same level of weight. Even at the most productive manufacturing stage, there is still a big gap compared with South Korea, Singapore, and other Asian manufacturing powerhouses.

Under pressure, "equipment first" has become an inevitable choice for China to develop the South China Sea. The forthcoming "Development Plan for Marine Engineering Equipment during the Twelfth Five-Year Plan Period" and "Decision of the State Council on Accelerating the Cultivation of Strategic Emerging Industries" will make equipment manufacturing a "fixed sea needle."

However, what is the source of the industry's flourishing growth in the development of oil and gas resources in the South China Sea? Is China's offshore oil equipment manufacturing industry ripe for profits and natural growth in the market, or is it being riped by government development policies? Will the nationwide system make the offshore oil equipment industry the next low-end locked-in "Made in China"?

Later "Habitat"

“Each Chinese-made jack-up drilling rig has a localization rate of 24%, and Chinese companies can only get 30% of all profits.” These figures are surprising, but it is not surprising that they have become a manufacturing power from China. Since that day, almost all Chinese companies have focused their entry points on low value-added processes. The offshore oil equipment manufacturing industry also failed to avoid the fate of being “below” afterwards.

Professor Lian Wei of the School of Naval Architecture, Ocean and Civil Engineering of Shanghai Jiaotong University summarized the competition pattern of ocean engineering equipment (including offshore oil equipment) manufacturing industry into eight characters: European and American design, Asian manufacturing - from Europe, America and Asia to different industrial development models It also determines the position of the country in the industry chain.

The top European and American companies have monopolized the design and high-end manufacturing of marine equipment. They have a global leading position and created the “European and American model” for offshore oil equipment manufacturing.

Among them, U.S. multinational companies account for half of the global offshore oil equipment market, and Houston is the center for R&D of global ocean engineering and offshore oil exploration technologies. McDermott and Technip are giants at the pinnacle of this industry chain. Their branches and staff are spread across 48 countries on 5 continents.

According to Jin Xiaojian, general manager of the CNOOC Engineering [7.06 5.37%] Ministry of Construction, the second echelon of offshore oil equipment manufacturing is South Korea and Singapore in Asia. As the leader in the low-end manufacturing industry, the two countries have their own different emphasis.

Singapore companies, which are known as "high-end manufacturers in low-end manufacturing," have undertaken orders for oil drilling platform manufacturing in many European and American countries and FPSO (Floating Production Storage and Offloading).

South Korea, which started its manufacturing industry, has taken a leading position in the number of handheld orders with low prices, rapid delivery, and high quality. In particular, in 2007-2008, Korean companies took over nearly half of the world's offshore engineering platform projects and created the “South Korea model” featuring large-scale, low-cost manufacturing.

The talented "Norwegian model" and "Brazilian model" also envy international colleagues. As a country with a long history of ocean engineering, it is the first country to enter this field and has mature experience. Brazil also built a developed offshore oil equipment manufacturing industry in a short period of time. It is understood that there are 46 deep-sea rigs currently operating in Brazil, and 28 have been ordered. Similar to it is Russia, which is also a big resource country.

Those who are in the last echelon are the "Chinese models" who later become "down." A marine engineering expert of CNOOC strongly pointed out that unlike the above-mentioned several kinds of evolutionary and mature development models, apart from the initial stage of the “China model”, the greatest congenitly weakness lies in the weak R&D, design, and final assembly strength. : Due to the government-led nationwide system, there is a lack of motivation from the market in the development of the industry. This is also the main reason why China has been “below” and has more than enough energy.

The "China model"

"China's offshore oil equipment manufacturing industry was created from the beginning to develop China's territorial sea oil and gas resources. It was not produced spontaneously by the market. The government did not boost the industry's development like the Korean government, but rather it completely led and ripened. The industry has lost its driving force for development.” The aforementioned marine engineering expert told the “Energy” reporter.

According to statistics by Professor Lin Li, in the next five years, the global marine engineering equipment industry will usher in the stage of gold development and the market size will reach US$276.5 billion. China currently accounts for 15% of the global market share, and the market size will reach 80 billion U.S. dollars in the 12th five-year period, and the investment will exceed 250 billion U.S. dollars.

Such a huge amount of investment shows on one hand the ambition of the Chinese government to develop the offshore oil equipment manufacturing industry; on the other hand, it is also puzzled: Since there is such a huge market size, why not use foreign capital and technology to develop and spend too much time? Huge amount of money comes from the main research and development? From the standpoint of cost alone, to achieve self-development and catch up with the European and American countries at the top of the industrial chain, to achieve independent design and research and development, it is clearly "not worthwhile."

"That is because China does not have the ability to replicate the development model of other countries," said the marine engineering expert pointed out sharply. The "Europe and the United States model" focuses on innovation, which is beyond the reach of the "China model" in which central SOEs are the main force and rely on the development of the nationwide system. The strength of the nation-wide system is to win by quantity - to create a large scale in the current state of technology, but it has always been impossible to get rid of the lowest link in the industry chain - production and processing, can not occupy lucrative upstream links, such as various sophisticated equipment Design and development, as well as the manufacture of core components and key materials.

Taking the offshore deepwater drilling platform “Sea Oil 981” that was docked at the beginning of the year as an example, all its core components, including hydraulic systems, diesel engines, key parts steel, and propulsion systems, were designed and manufactured by a foreign company because of the unified standards of these components. In the hands of several large international classification societies, products designed and developed by the Chinese themselves cannot meet this standard and are not recognized.

"As a result, the nationwide system of manufacturing China's offshore oil equipment, like other manufacturing industries, can only cause a large number of companies engaged in simple manufacturing to stumble at the low end of the industry chain's profit margin, and surrender the lucrative high end to the people, and then the other side. Take the nose and walk," the expert said.

Looking back at the most representative "Korean model" in Asia. Although South Korea and China are cutting through the manufacturing chain into the marine equipment industry chain, the difference is that South Korea does not have its own offshore oil and gas resources. Its purpose in developing the offshore oil equipment manufacturing industry is very simple, just to revitalize the industry and develop the economy. ,gain profit. The original intention of China to establish this industry is to develop its own offshore oil resources. Therefore, the source of the development of offshore oil equipment manufacturing in the two countries is completely different.

There was a famous saying in the investment community that “gold diggers may make a fortune or may go bankrupt, but people who sell jeans and tools to gold diggers often make a fortune.” If China were to develop equipment manufacturing solely for making money, it might indeed be like production. Jeans are as profitable as shirts. However, for the CNOOC equipment manufacturing industry that produces "tools" for its "gold rush", the answer is not necessarily the case.

When viewed from the perspective of source power, China appears to be similar to other resource countries that have offshore oil and gas resources, such as Brazil and Russia. Unfortunately, the potential of oil and gas resources in the South China Sea is far from comparable to Brazil and Russia. It is understood that Brazil’s oil reserves under salt may reach as much as 338 billion barrels, or even exceed the reserves of 264 billion barrels of Saudi Arabia, the world’s largest oil producer.

Therefore, China is far less resourceful than Brazil and Russia, and it is difficult for international oil companies to flock to Russia as much as Brazil. If China, like other resource countries, makes various demands to international oil companies, these companies can absolutely not choose China. This is also why international companies operating in the South China Sea have so far been very limited.

It can be assumed that if the South China Sea has oil and gas resources that are as global as the Gulf of Mexico and the North Sea, the international oil giants will surely bid, and China can adopt the “Brazilian model” to require international oil giants to use Chinese-made platforms. The other equipment used must also be manufactured in China, so as to bring the company's brand, technology, processing and manufacturing to China, which in turn will lead to the rapid rise of China's offshore oil equipment manufacturing industry.

However, China has not been so lucky: because of the existence of certain offshore oil and gas resources, the offshore oil equipment industry was created to develop its own oil and gas; however, resources are not sufficiently enriched to attract international oil giants to mine. Therefore, the government wants to rely on the strength of the central SOEs to invest in the offshore oil equipment manufacturing industry.

The above-mentioned experts told the Energy magazine that innovation in the technology field cannot be achieved by relying on the power of the entire nation. “South Korea's shipbuilding industry started 20 years behind China, but now it surpasses China. It is mainly a question of developing the system and thinking. China’s energy development has not yet escaped from the “first equipment and then development” thinking mode, not Under certain conditions, development is carried out. In fact, most of the countries that have developed global oil and gas resources are well developed through cooperation or hiring foreign companies instead of relying on themselves."

Protecting the "neck" and sticking out the "fist"

Professor Lin Lian of the School of Naval Architecture, Ocean and Civil Engineering at Shanghai Jiaotong University believes that there are indeed institutional problems in the development of China's offshore oil equipment manufacturing industry, but there are also reasons and backgrounds. The Western countries have only signed service contracts with Chinese companies for a long time, but they will not allow Chinese companies to acquire any technology, or will punish Chinese companies on their core components and refuse to sell them to Chinese companies, thus curbing the development of China in this field.

According to a person from a domestic marine equipment manufacturing company, the United States has indeed imposed an embargo against China on certain key components or materials for offshore equipment, forcing the Chinese company to “circle around the big circle” and through some European countries can purchase it indirectly.

A senior executive from ConocoPhillips China also admitted that the requirements for equipment in deep-sea drilling are very high. BP has such advanced technology. The equipment used is manufactured by the top companies in the United States and Germany, and there are still problems. If we consider the industrial level and the manufacturing level, China lags far behind those of the United States and Germany. In order to develop deep-sea oil, many equipment must rely on imports. Western countries will also restrict China through bans on many high-tech equipment, fearing that these technologies will be used by China for military development.

However, even in non-core parts and even seemingly insignificant gadgets and small instruments, Chinese companies may lack bargaining chips due to lack of technology and are forced to accept foreign high prices. The use and maintenance of offshore oil equipment requires technical support from service providers. However, if the service provider is a foreign company, it may inflate the price for services such as maintenance. Chinese companies that do not have the relevant technologies have no choice but to “kill others”.

In addition, foreign suppliers may also extend the ordering period for Chinese-owned companies' vessels, sometimes for an additional 2-3 months. This can be a "catastrophically dramatic increase" in costs for offshore companies. Because the cost of renting offshore vessels is very high, the cost of deep-sea vessels is even more striking.

According to statistics, the daily rental fee for jack-up drilling rigs has skyrocketed from about 60,000 U.S. dollars in 2005 to 200,000 U.S. dollars, and the daily rental fee for deep-water semi-submersible drilling platforms has soared from 170,000 U.S. dollars to 500,000 U.S. dollars. Some projects require the joint operation of the entire fleet, which is more costly and may reach millions of dollars a day. Therefore, if a ship or an accessory cannot be put in place, the overall operating cost will increase significantly.

For example, in China, the first ultra-deepwater drilling in China, Tsuen Wan 3-1-1, was operated by a foreign company renting foreign rigs, but at that time the operation was postponed due to delays in the arrival of ships, which greatly increased costs.

Therefore, China has vigorously promoted the independent R&D and design of the offshore oil equipment manufacturing industry. The primary purpose is to avoid being “clamped” by foreign companies in oil and gas exploration.

Another view was that Zhang Kang, an expert of the Petroleum Exploration and Development Research Institute of China Petroleum [10.47 2.85%] Chemical Industry Co., Ltd., expressed his opinions on a part of experts: China proposed to make the sea in the “Twelfth Five-Year Plan”. The equipment manufacturing industry has achieved a production value of 100 billion yuan, accounting for 20% of the world market share. To achieve this goal, China does not necessarily have to realize “independent research and development, independent design, and independent manufacturing” in the manufacture of all core components of marine equipment. It needs to integrate with the global market, and communicate with large international companies through cooperation. .

As long as they have the capability of independent research and development, independent design, and independent manufacturing on some of the "private products," they can have their own core competencies, thereby collaborating, exchanging, and bargaining with other companies in the international market.

At this point, the views of the above two experts are very much in line - China has to extend its "fist" of equipment manufacturing in order to protect the "neck" developed by the South China Sea. However, the problem seems to be turning back again. Can the government-led "China model" have the source to create a "fist?" Perhaps Zhang's answer is intriguing: "China's energy system has always been monopolized. Is this still necessary?"