Business opportunities within Chinas petroleum sector

China’s Petroleum SectorAsia Days 2013, 11 June, Grimstad

Knut Roald Sørlie

Ivar Moesman

Content1. The Big Picture2. Resources & Potential3. Chinese National Oil Companies (NOCs)4. Opportunities and barriers


Source: BP’s Statistical Review of World Energy data

1. The Big Picture

1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects

• Oil, 2011

INTSOK, CIA Factbook (2009 – 2011)

• Natural Gas, 2011

China no. 11China no. 7China no. 4

China no. 2China no. 5China no. 2




Market trends• 50% of the global increase in demand over the next 20 years is predicted to come from China• 60% of China's oil consumption will be imported by 2020• Past 10 years: 53% of China’s increased oil and gas output came from the offshore sector. 2012: Increased to 85%• 800–1.000 bill. Yuan ($121-151 billion) will be invested in the offshore industry during the 12th Five-Year Plan (2011-2015)

• Offshore: 35% of world production. Deep water 2002-2012: 3%-10%. After 2012, deep water is the only sector to growth• Bad shipbuilding market creates a shift towards offshore sector

Sources: IEA, World Energy Outlook, energy files, Agility Group

35%

65%

World Oil Production


Source: IEA



Sources: IEA / PetroChina

LNG Terminal


2. Resources & Potential

Tarim

Basin

Qaidam Basin

Sichuan

Dadang

South China

Sea

Ordos

Shengli

Zhongyuan

Jiangsu

Liaohe

Yellow

Sea

Sources: CERA / INTSOK / EEE Reporter/Wikipedia


Source: CNOOOC, BBC, RT News

Just one problem…


Source: www.offshore.technology.com, CNOOOC

… that can be avoided


Statoil (75 %) / CNOOC (25 %), 1997-2009

Haiyang Shiyou (“Marine Oil”) 981 – with Norwegian technology


Source: www.chinesedefence.com / CNOOOC

http://www.chinesedefence.com/

Norwegian companies in China with relevance to oils & gas


http://www.nexans.no/eservice/Norway-no_NO/navigate_-22/Global_ekspert_pa_kabler_og_kabelsystemer.html

http://www.km.kongsberg.com/ks/web/nokbg0237.nsf/AllWeb/AFA3D0473C700E69C1256C4F003DB3C0?OpenDocument



3. Companies

China National Petroleum Corporation (CNPC)

China Petroleum and Chemical Corporation (Sinopec)

China National Offshore Oil Corporation (CNOOC)

PetroChina China National Oil and Gas Exploration and

Development Corporation (CNODC)

Sinopec Corp. CNOOC Ltd.

CNOOC Offshore Oil Engineering Ltd.

China BlueChemicals Co., Ltd

China Oilfield Services Ltd.

Sinochem

Zhenhua OilYanchang

CITIC resources

The 4 minor NOCs

Source: INTSOK, Wikipedia

Domestic E&P Overseas E&P

Sinopec Int. Petroleum Explration and Production Corp.

(SIPC)

Overseas E&P

Sources: CERA / INTSOK / EEE Reporter/Wikipedia

CNOOCUpstream offshore

Sinopec Downstream

CNPC/PetroChinaUpstream onshore



1. Goals of Chinese NOCs: Fill the demand-supply gap!

Supply energy to continue the economic expansion and modernization of mother China.

• Diversify sources of supply• Increase reserves• Increase production capabilities• Become integrated energy companies

o Energy collected from international activitieso Integration across value chaino Job creationo Spin-offs to domestic sectors – domestic demand for related goodso Global statureo Not just ST profits to shareholders

2. Opportunities

2.1 Upgrading Chinese technical capabilities

The Chinese NOCs have had limited experience outside of their historical focus areas in China’s domestic oil and gas sector, which is a problem for them as they go overseas into new areas and expand domestically. Chinese companies need to acquire technology and to learn from foreign companies.

• Upstream deepwater• Equipment; design; engineering; construction; services; standards, practices & regulation;

management• Currently China imports 70% offshore-related equipment

• LNG • LNG Equipment; Bunkering & Ship to Ship Transfer; Regasification solutions; Small Scale LNG;

Rules, Standards & Regulations/ Risk Management; Maritime Technologies

• Shale Gas

Limited opportunitiesChina wants to protect its own industry from competition domestically, within areas where the NOCs have experience: Chinese NOCs run shallow water offshore and traditional onshore alone

1. China’s petroleum appetite continues to grow

2. China wants to narrow the demand/production gap

3. Acquires technology from foreign companiesa. NOCs invites foreign companies on shale gas and –oil and deep water offshore

4. … and protect its own industry from competition domesticallya. Chinese NOCs run shallow water offshore and traditional onshore alone

5. Shale gas, CCS / CCUS revolution

6. New shipping routes (LNG)?

7. China’s NOCs continue to “go abroad”a. Acquire technology from the Westb. … and utilize it domestically and in Africa

Source: Worldoil.com

Source: www.freeworldmaps.net

Technology

Technology

Acquired technology

History of offshore rig construction

• Can China Offshore repeat what was achieved in shipbuilding? What can China learn from Korea and Sinpgapore?

Global Offshore Drilling Rig Order book (Sept. 2012)by Shipyards’ countries by owners’ countries

Sources: ODS Petrodata, Agility Group

12th 5yr-Plan20% 2015

USA, Eur. Korea, Singapore China?

0

10

20

30

40

50

6048

43

27

13 116 6 6 5 5 5 4 3 2 2 1 1

Total (188 units / 17 countries)

32%Norwegian

owners

Example: Chinese Offshore Shipyards, lack and limited experience creates opportunity

Design & engineering, limited experience• Concept and Basic design: Underestimate the importance of detailed engineering• Limited rig operation experience• Underestimate the interface engineering

Fabrication & Construction, lack of experience• Apply shipbuilding experience into offshore construction• Lack of proper Project Management, Planning and Weight Control, et al• Lack of qualified and experienced work forces• Lack of qualified subcontractors and Commissioning experience

Standards and Practices, lack of experience• Not familiar with relevant Class’ rules and regulation: Norsok Standard• Limited experience with offshore equipment and procurement practice• Lack of offshore QA/QC/DC standards and practice• Chinese shipyard’s organization and management style: “Project Manager has no control of manpower, money and

facilities”

2.2 Cheaper productionChina will be one of the biggest markets for offshore rig and equipment and Norway needs to build new equipment, high quality, low price for deployment in the North Sea.

Barriers and possible resolutions

• Complexity on procurement and decision making procedures; Business culture and language barrier• Cope with increasing local content requirements• New market entrants have low visibility at the beginning and find difficulty in establishing trust with local companies

Establish local entity and engage the right local managers with strong understanding of major local players

Market synergistic offerings by teaming up with other Norwegian companies

• Importance of personal relationship and networking

Demonstrate long term local presence and ambitions in China

• Norwegian companies are perceived as having high knowledge base but are very costly

Offer good after sales services

Focus on targeting areas where Norwegian companies have a head-start in compared to other companies e.g. LNG fuelled ships

• Offshore especially: Political situation?


INTSOKChina Officec/o Det Norske Veritas (DNV)9th Floor,Tower C, Office Park,No.5 Jinghua South StreetChaoyang DistrictBeijing 100020, China

Jian Guo (Jason), Oil and Gas [email protected]

Innovation NorgeChina OfficeRoyal Norwegian Consulate General, Shanghai, Commercial SectionRm. 1701, Bund CenterNo. 222 East Yan’an Road, Huangpu DistrictShanghai 200002, People’s Republic of China

Ivar Moesman, Market [email protected]: +86 216 3290 498

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