China Inc joins the big league in oil and gas services

PUBLISHED : Wednesday, 16 April, 2014, 1:21am
UPDATED : Wednesday, 16 April, 2014, 1:21am

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 established rivals.

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 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.

"The Chinese provide products with better value," said Scott Darling, Hong-Kong based head of Asia oil and gas research at JP Morgan.

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 and Sembcorp Marine.

To stay ahead, both Keppel and Sembcorp are increasingly building more sophisticated equipment, an area where Chinese firms still lack expertise.

Chinese companies won over half the global orders for jack-up rigs last year, up from around a third between 2008 and 2012, data from IHS Petrodata showed.

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.