Singapore to supply China's oil guzzling

New field for marine, offshore firms

Business Times 17 Jan 08;

China's rise as a marine and offshore player offers opportunities for Singapore's companies, reports CHUANG PECK MING

CHINA'S red-hot economy has turned the country into an oil guzzler matched only by the United States - and that should have Singapore's marine and offshore industry salivating at the prospect of more business.

The Chinese consume over 7.4 million barrels of oil daily. Last year, China spent US$81.9 billion on oil imports. All the signs point to China's demand for oil escalating.

Coupled with a global shortage of the commodity, this has led China to step up its oil and gas exploration efforts, pumping more money to build up its marine and offshore industry.

China's rise as a marine and offshore player spells opportunities for Singapore's seasoned offshore and marine players, according to International Enterprise (IE) Singapore, the government agency pushing Singapore business to go international.

'In tandem with the growth of its oil and gas industry, China will need to build more platforms and other offshore facilities, repair some existing structures and decommission others, and move operations into deeper waters,' says Tham Poh Cheong, director of Corporate Group for Infrastructure Services and Environmental Services at IE Singapore.

At the same time, China has also opened up its oil markets - once monopolised by Chinese state-owned enterprises - to the private sector and foreign players, making it a more level playing field.

To be sure, Mr Tham says the development of China's marine and offshore industry - backed by the Chinese government - is a double-edged sword. It will also produce Chinese competition for the Singapore companies.

But Singapore's strong position and long experience in the business will stand its companies in good stead to seize the opportunities that come with China's rise as a marine and offshore player.

'Singapore, as one of the world's leading integrated marine and offshore centres, can effectively collaborate and support China in its drive to develop its offshore and advanced marine sectors,' says Mr Tham.

'Singapore currently plays host to a comprehensive cluster of marine and offshore companies with vessel owners, shipyards, fabricators, key equipment manufacturers and engineering service providers undertaking a wide range of activities,' he adds.

Since 1981, when the first tanker was converted to a floating production storage offloading (FPSO) unit, Singapore shipyards have finished well over 30 related jobs, making it the undisputed leader in FPSO conversions.

According to a Reuters report, Singapore-listed yards have cornered more than half of the 92 oil drilling rigs under construction worldwide.

Meanwhile, smaller Singapore yards are making their presence felt in building offshore support vessels (OSVs) for anchor handling and towing as well as supply vessels.

'These OSVs are deemed the 'workhorses' of the offshore industry, helping transport, moor and supply staff and goods to offshore rigs and platforms,' Mr Tham says.

'Singapore yards such as Labroy Marine, Jaya Holdings, Pan United Marine and ASL Marine are building nearly a quarter of the 300 or so OSVs on order worldwide, vying with leading global players such as Norway's Aker and Kleven Verft and Bollinger Shipyards of the United States.'

Mr Tham says Singapore's marine and offshore companies can concentrate in three areas when venturing into the Chinese market - collaborating with the Chinese on offshore constructions; setting up yards in China; and supplying equipment and services to Chinese shipyards.

'As a comprehensive offshore engineering centre, Singapore has capabilities in floating production, processing, subsea equipment, pipelines and installation engineering,' he says. 'Singapore has also benefited from the strong growth of the offshore industry with several leading players, including MODEC, Prosafe, GPS and APL, strengthening their presence here in Singapore over the past year.'

He says offshore engineering, procurement and construction contractors and shipyards here should team up with China shipyards to build and integrate top modules for FPSO. IE Singapore can play match-maker - and there are various incentive schemes that Singapore companies can tap.

Singapore offshore and marine companies can also take advantage of China's skilled labour and ample waterfront space for shipyards and fabrication yards to expand their capacity for orders in the booming offshore and marine market. Keppel Nantong Shipyard, owned by Keppel Offshore & Marine, is one prominent Singapore company that has done so.

To upgrade China's marine capabilities and develop its offshore sector, which is a primary goal of the country's 11th Five-Year Plan, the country would need high technology, machinery and management for the shipbuilding industry, says Mr Tham.

'The best prospects for Singapore companies looking to leverage on China's growing shipbuilding companies are in the supply of raw materials, coating equipment and coating materials, computer-aided design software and associated technology for ship design and construction, equipment maintenance, high-tech equipment such as GPS, navigation and on-board computer systems, cutting and welding technology and related equipment,' he says.

Other areas in demand by the Chinese, and which Singapore can meet, are state-of-the-art equipment and products like welding gears, cathodic protected steel items such as fasteners, bolts and nuts, high-quality thermal expansion joints and specialised services like on-site machining for oil rigs and platforms and FPSOs construction.

'Although the supporting industry for the marine industry in China is fairly established, the offshore industry is relatively new and undeveloped,' Mr Tham says. 'Hence ample opportunities are available for Singapore offshore suppliers and service providers.'

But he cautions that labour costs in China are rising and there is local competition.

'One of the findings during IE Singapore's mission to eastern China in November 2007 was that the average wages for shipyard workers in the wealthier eastern region was not as low as perceived,' Mr Tham says. 'The wages for workers in shipyards in the Zhejiang and Jiangsu regions came up to around 3,000 yuan (S$594) monthly for skilled welders and 10,000 yuan for experienced engineers.'

Competition will come from many local Chinese companies which have started to manufacture and supply related equipment, he says. But Singapore companies can sidestep the threat by stepping up their research and development efforts and move up the value chain in manufacturing and engineering services, according to him.