Orientation of Asia-Pacific offshore expenditure (Source: Infield Systems’ Offshore Oil & Gas Asia Market Update 2008/2012)

In August 2008, an estimated four billion people tuned in to watch the Olympic Games in Beijing. The world’s media descended upon China expecting to find evidence of an economically exploited, politically repressed people looking enviously to the developed West. The pre-Olympic buildup focused on issues such as Tibet, Xinjiang, and whether journalists could surf Google in an unrestricted manner. Despite the scrutiny, what emerged was “the greatest show on earth,” a people united behind a common purpose and engineering feats indicative of a strong financial arm.

The Beijing games were in many ways an expedient that permitted a view of China and the other Asia Pacific countries in a role of global economic parity. It was a confirmation that while the developed West’s tertiary, service-based economies are floundering in the sub-prime crisis, the Asian countries, economically focused on manufacturing, have powered through these difficult times.

Securing technology for success

Despite NOCs being fastest out of the blocks (and their ruling powers having nationally focused protectionist development policies), an abundance of natural resources and seemingly endless supplies of cheap labor mean there are plenty of opportunities for enterprising private companies in Asia.

As the countries in the Asia Pacific region look to source further hydrocarbon resources for their growing populations and industrial bases, Infield anticipates a growing demand for the specialist experience and skills developed by companies operating in established production zones. Given the current tightness in the global provision of support services to the offshore oil and gas sector, this could mean that there are many golden opportunities available for companies that are willing to work in China and its neighboring countries.

Fueled by rapidly growing populations and a hungry manufacturing industry, the offshore market of Asia is expected to undergo significant increases in investment over the next five years, with the associated growth in activity levels making it one of the world’s key petroleum production hotspots.

Investing offshore

Historically, offshore capex for this region has been consistently around the US $7 billion per year mark; however, with significant discoveries and development prospects evolving from offshore Myanmar to all points east, operators have been encouraged to explore more in this region, and seismic surveying activity and other initial prospecting activities have increased substantially over the last few years. Given the natural time lag between these initial investigations and the installation of production infrastructure, it is only now that we are seeing step-changes in regional capex in terms of new platform, pipeline, and subsea infrastructures, which will result in the total offshore market doubling to around $14 billion a year beyond 2009.

With regard to these business segments, opportunity beckons not only for companies currently active in the Asia Pacific area, but also for those companies that have developed expertise through successful operations in established production zones such as the Gulf of Mexico (GoM) and northwest Europe continental shelf (NWECS).

Those looking to enter this expanding market or hoping to expand on an existing presence in this region must be aware not only of the different business practices and customs, but also of the preferences for development patterns which, given the comparative age of this market, are slightly at odds with current practice in mature basins such as the GoM or NWECS.

As the accompanying figure helps illustrate, the Asia Pacific subsea market is poised to become more significant vis-a-vis the platform market (Figure 1). This is a market that has room for expansion, encouraged by projects such as increments to the D-6 (Dhirubhai) field in the Krishna-Godavari basin offshore India’s east coast, the Chevron projects in Indonesia, the Gumusut/KaKap project offshore Malaysia, and other deepwater Sabah discoveries such as Malikai and Rotan.

The subsea market is not expected to undergo its most significant growth immediately. As the regional market matures over the next five to 10 years, however, we expect to see an increasing demand for contractors with subsea experience.

Pipelines and platforms

Trunk lines in the Asia Pacific region look set to provide the largest pipeline market over the next five years, accounting for around 28% of the global pipeline installation market between 2008 and 2012. Given the current tightness in the markets associated with pipelines – lay vessels, for example, are currently in short supply – it is no wonder there have been tactical moves by Asia Pacific operators to secure first calls on specialist vessels. This tightness is a situation that we believe will ease on a global level in the future as the lag between supply and demand is overcome and new vessels enter the market.

While many of the new pipelines in the Asia Pacific region are not as grandiose as the 880-mile (1,440-km) export line proposed to connect Sakhalin in Russia to Tsuruga in Japan, many are substantial, and this looks set to encourage the migration to this region of high-specification lay vessels, for which supply will remain tighter for longer.
Turning to look at fixed platforms, approximately one-fourth of the total future forecast global market will be installed in Asia Pacific waters. This market is expected to prove robust over the next four years, and we anticipate expenditure relating to fixed platforms to average around $4 billion per year.

Three of the largest projects in terms of capex are in the Gulf of Thailand and involve the Platong 2, Bongkot South, and Muda fields, which are expected to cost in the region of $530 million each, with topsides of 19,000, 17,000, and 18,000 metric tons, respectively. These structures, along with 97% of the remaining fixed platform market for this region, are likely to be of a piled design, with perhaps one or two more innovative designs on certain specific fields.

While fixed platform demand is anticipated to be consistent over the forecast period, the floating platform market is likely to expand much more rapidly. In terms of total units installed, around one quarter of all floating production platforms installed to 2012 are likely to be in Asia Pacific waters, making this region the biggest single recipient of floating technology.

In expenditure terms, though, this area looks unlikely to be the most lucrative destination market, and floating production investment going to the Asia Pacific area will account for just 14% of global floating expenditure over the forecast period. Driving this paradox is the size of the floating production units recruited for operation in Asian waters, which are typically much smaller than their West African and Latin American cousins. This said, floaters destined for other markets, particularly West Africa, will have a large part of their construction carried out in Asia; hulls and topsides, newbuilds, and conversions all can be catered for in the arc of yards that stretches from Singapore to Dalian, China.

Investment potential

Given that much of the commercial success of this region has been forged from economic policies that have looked to protect key developing industries from direct competition with the free market economy, it is unsurprising to see the specter of resource nationalism present here. However, those countries that are looking to increase their ability to produce petroleum energy independently have been quick to recognize that they need to harness the expertise and insight of experienced practitioners. To this end, the Asia Pacific region offers both outside contractors and operators alike an expanding frontier from which to win more business.