As the oil and gas industry weathers a transitional phase brought on by a drop in oil prices, burgeoning markets in Southeast Asia stand poised to establish themselves as legitimate players in the future. Attendees of the recent Offshore Technology Conference Asia in Kuala Lumpur saw the myriad ways in which the region’s potential could make it into an industry stronghold.
In a series of sessions devoted to individual countries in the Asia Pacific region, representatives from national oil companies, multinational operators, and service companies presented their thoughts on the roles they will play in the overall development of the region and the global oil market.
Panel speakers at the China country session described a country flush with natural resources but unable to exploit them to the fullest extent. Led by its national oil company, the China National Petroleum Corporation (CNPC), the country is eager to acquire the tools needed to increase production from its oil and gas reserves.
While the Chinese market is still in a nascent developmental stage, Zhang Xiaofeng said the CNPC is optimistic about its progress in developing specific types of reservoirs. Zhang, a project manager at CNPC, cited volcanic reservoirs as a particular source of optimism. China has one of the largest collections of proven volcanic reserves in the world; 900 billion m3 of the country’s 3 trillion m3 (Tcm) total proven reserves is in volcanic reservoirs.
However, Zhang said there are some technical difficulties CNPC faces in actualizing these resources. He said the company must improve its reservoir prediction techniques, as well as its crack detection.
Zhang was equally optimistic about shale gas prospects in China, but operational costs must continue to decline in order for the country to increase development of the resource. CNPC estimated that in 2015, the cost of drilling a horizontal well in shale formations in the Sichuan Basin ranged between USD 11.3 million and USD 12.9 million per well, representing a 23% cost reduction from 2013.
“Of course, shale gas is an important resource for China,” Zhang said. “It is a rich gas area, and hopefully some of our successful projects will push shale.”
China’s focus on shale gas has been driven in large part by its inability to develop its coalbed methane (CBM) resources. The country’s total resource of CBM is approximately 36.8 Tcm, but the coal depositional structure in China is too complex for the existing technological infrastructure to exploit. Overcoming this complexity will be critical for the country in the near future. Zhang said there is, at present, no large-scale commercial production of CBM in China.
Xiangyu Wang, a professor of construction management at Curtin University and the moderator of the session, said renewables should play a larger role in China’s energy policy, even as the country continues to develop its oil and gas economy. Coal made up 65.7% of China’s total energy consumption in 2013, compared with 18.9% for oil and 5.5% for gas.
Wang said China has relatively abundant wind energy resources because of its monsoon climate and its long coastline. He identified the southeastern coast and the provinces of Shandong, Jiansu, Zhejiang, Fujian, Guandong, Guangxi, and Hainan as areas with great potential to develop offshore wind power.
However, Wang did not identify exactly which strategies the Chinese government was prepared to enact to help extract more renewables.
“I think, probably, [China] will rely on more renewable energies,” he said. “I think the Chinese government will be quite ambitious in going to the coasts to get these resources.”
Zhang said the Chinese government has always encouraged and actively sought foreign investment to help further development in the country’s oil and gas infrastructure. Hao Yunxing, director of the Qingdao WELL Ocean Science and Technology Association, said his organization has visited more than 30 countries in the past 3 years to encourage investment. It also co-hosted the International Ocean Technology Conference and Exposition last year in Qingdao with the goal of exchanging ideas between Chinese agencies, service companies, and the global academic community.
“China’s engineering, technology, and equipment areas are developing a little bit late, but now we are cooperating with other countries and we will work together, so we can potentially have a very big market in China. If we cooperate with advanced technology companies, we will achieve a lot. We are building a platform for the international technology community and scientific communication in order to build international confidence and expand together,” Hao said through an interpreter.
The South Korea country session touched on the country’s expansive fabrication facilities, and the role its three major fabricators—Samsung Heavy Industries (SHI), Hyundai Heavy Industries (HHI), and Daewoo Shipbuilding and Marine Engineering—will play in helping the industry weather the oil price downturn.
Cost reduction for offshore projects was at the forefront of discussion for the panel speakers. Yonghwan Kim, chair of the department of naval architecture and ocean engineering at Seoul National University and moderator of the session, said that operators’ cost-cutting efforts focused primarily on concept design optimization and selection, but not in the fabrication of platforms. Despite that focus, Woo-Seung Sim, research director at HHI, and Joongnan Lee, senior manager at SHI, agreed that South Korea bears some responsibility in assisting operators to lower their expenditures.
Lee mentioned SHI’s Research Institute as an entity devoted to increasing cost efficiency for projects. Founded in 2014, the institute spearheads initiatives that help add value to offshore projects and plant technologies, while also developing specialized functions to enhance their technological competitiveness.
Sim said there are two additional ways fabricators can help beyond research and development. One way is through increased collaboration with engineering companies to develop cost-effective topside designs. Another is through a greater push for standardized designs and construction processes, which he said could help shorten construction schedules and save money.
Sim said shortened construction schedules should not affect the quality of the facilities being built at the fabrication yards.
“I think we can keep to a [shorter] schedule and maintain value for all projects. It is the first thing I think HHI can do for the industry. As you know, normally offshore project budgets have kept increasing, so I think if we can plan now and push for standards, I think costs can be reduced as part of the whole project,” he said.
Lee said standardized processes could help in the long term, but fabricators would have to reconcile the short-term spend required to conform their assembly equipment to a common specification, as well as the effort needed to optimize production and automation.
Panelists at the Malaysia country session described the host country as one on the verge of leading the Asia Pacific region, with multinational operators and service companies making necessary infrastructural improvements to handle an increasing project workload.
Datuk Rajendran, deputy chief executive officer at the Malaysian Investment Development Authority and moderator of the session, said Malaysian companies must consolidate into “formidable and competitive” entities capable of handling the eventual turnaround in oil prices. Rajendran also said that an overly competitive market may have negative consequences on local industry in the future.
Adif Zulkifli, senior vice president of corporate strategy at Petronas, echoed similar sentiments. Prior to the downturn, he said the country saw an influx of companies with little history in oil and gas operations enter the market. This led to an increase in inefficient operations, which then resulted in what he called an “uncontrollable” escalation in production costs. At present, he said approximately 3,600 service providers were registered with Petronas.
Zulkifli said the market forces present in the current oil price downturn will lead to a necessary shake-up in the Malaysian sector, where only experienced companies willing to adapt to changing circumstances in the long term will be active.
“The oil and gas services and equipment players need to be more competitive, more efficient, and self-sustaining, and offer varied services. Let’s not forget, too, to step back and rethink technology, where we can drive down costs further and improve efficiency, innovation, as well as oil and gas industry cooperation,” he said.
Zulkifli highlighted Petronas’ work with the Cost Reduction Alliance 2.0 in helping reduce inefficiencies and lower costs in the Malaysian market. Launched last year, the program is a collaboration between Petronas, contractors, and service companies seeking to optimize costs, improve efficiencies, and increase productivity in the Malaysian upstream business.
To achieve these goals, Petronas established the following initiatives for other companies to follow:
As of March, Petronas has saved MYR 2.4 billion under the program. Zulkifli said the company expects to save MYR 4.9 billion in 2016.
Maen Razouqi, vice president and general manager at Schlumberger Malaysia, said efficiency must become a primary focus for Malaysian companies moving forward. He said operators and service companies are too willing to accept high rates of nonproductive time (NPT) on upstream E&P projects, and that willingness could lead to unnecessary financial losses. These companies need to place a greater emphasis on eliminating NPT.
“Is it easy to eliminate NPT? No. But I think what we want to do, jointly with operators and with our partners, is to find out elements to reduce that because that’s what’s going to bring the efficiency, and the costs down,” Razouqi said.
He said Schlumberger’s average NPT rate in Malaysian operations over the past few years is between 8% and 9%. The company’s goal is to reduce that figure to less than 1% by 2020. Last year, it spent approximately MYR 50 million on its Malaysian infrastructure and an additional MYR 200 million on contracts with third-party suppliers.
In addition, Schlumberger established the Wireline Center for Reliability and Efficiency in Port Klang to maintain logging tools and prepare them for distribution to its operations in Malaysia, Thailand, and Vietnam. The center is another example of consolidation in the region: By placing its sourcing decisions to a central location, Razouqi said Schlumberger has seen greater efficiency in operations and a reduction in Capex.
“If you want to enhance the efficiency of our tools, the turnaround, and look at reducing our Capex, we cannot accept a situation where our operators need to have a backup tool,” Razouqi said. “We want to be in a position where we can showcase our ability to do things right the first time so no one will have to have a backup tool that you have to pay for.”
Like Schlumberger, FMC Technologies has also committed to Malaysia as a central player for its activities in the Asia Pacific region. Douglas Bruce Moody, general manager and senior vice president of subsea systems at FMC, said the company has ramped up its infrastructure in the country over the past 10 years. The company’s headquarters in Kuala Lumpur houses its engineering and deepwater project teams, and it opened two plants in Johor Bahru to expand its manufacturing capabilities.
Moody said FMC is committed to developing a strong Malaysian workforce, primarily by increasing its annual spend with Malaysian suppliers and training local staff. He said that approximately 10% of FMC’s staff in Malaysia is contracted from outside of the country, and that the company hopes to lower that percentage in the coming years.
“This is a very important part of what we do globally, getting good local suppliers and developing an ecosystem,” Moody said. “We localize everywhere we go. The majority of our work staff is Malaysian. Through our core values, we’ve developed these people to be ready for the oil and gas industry.”
One of FMC’s goals in the region is to publish standard specifications of equipment components for operators to use throughout the region. Moody said standardization will help improve efficiency in its operations, as it will not have to design customized equipment for every project.
“If you take the standard, not only is your cost much lower, but your lead time is much lower and, most significantly for the subsea industry, the deviation from your delivery time is much more concise. We can be much more predictable as an industry, and cut down the nonproductive time,” Moody said.
OTC Asia Sessions Discuss Region’s Role in Price Downturn, Recovery
Stephen Whitfield, Staff Writer
01 June 2016