Capturing Opportunities for success in China’s evolving oil and gas markets

While the oil and gas industry is often unpredictable, nowhere embodies the rapid pace of change in our market more than China. The speed of development in the region means that suppliers and technology providers must stay constantly up to date with the latest progress in the area, and must remain flexible to supply technology that meets the most recent needs of the market. If not, they run the risks of being left behind, and missing out on some of the biggest opportunities.

One of the main dynamics in China is the rapid increase in LNG demand. Back in May 2017, the country had just overtaken South Korea as the world’s largest importer of LNG. In the first half of 2018, according to DNV-GL, the country imported 50% more gas than it had in the first half of 2017. This increase in gas imports is driven primarily by the need to phase out coal as a source of power generation, and reduce the pollution that chokes many cities, especially in winter.

Further research from DNV-GL showed that almost two thirds (61%) of senior industry professionals in China say more investment is needed in LNG and pipeline infrastructure.

This growth is stimulating new dynamics in the Chinese LNG market. Privately-owned players are emerging, and are enabling third-party access to China’s LNG import terminals for the first time through their new installations. A 2017 study from Poten & Partners highlighted growth in Chinese small-scale LNG demand. The report noted that although large state-owned companies are likely to dominate, owing to their access to import infrastructure and extensive supply portfolios, smaller Chinese players are pushing ahead with plans for regasification and storage terminals, in an effort to secure a toehold in the domestic gas supply chain.

This increased demand necessitates the swift evolution and deployment of new technology. DNV-GL notes the need for operators to consider the implications of construction in areas that are environmentally sensitive; taking into account third-party construction damage, and contractors’ construction operations, etc.

This mirrors the dynamics that accompany the growth of LNG around the world, and while the DNV-GL report focuses on pipelines, these same concerns affect LNG terminals, or locations for FSRUs. To meet rising demand and to ensure that the fuel can quickly reach its destinations, modern LNG infrastructure must be cost effective, quick to build, and must also minimise its environmental impact. Trelleborg’s Cryoline technology is a vital piece in this puzzle, as it has the potential to either augment existing terminals, or establish a lean, quick to install, jettyless transfer solution.

There is clearly a valuable opportunity emerging for international companies who can supply this kind of innovative technology. However, this market should by no means be taken for granted as local expertise grows. According to a recent report by FPSO world congress, local yards have significantly increased their expertise and technical ability, and are developing local supply chains. This means that they are able to take on far more challenging, bespoke projects for super majors than, for instance, yards in Korea. “Previously projects might have had to rely on talent flying in from overseas but now… there is a lot more expertise and assistance closer to hand,” it claims.

Another new model of collaboration is emerging, according to the report, whereby super majors conduct work in China, but work via an engineering contractor or project manager – such as Exxon working with Chinese yards via SBM.

The upshot of this is that, while in the past, increased demand for LNG and an increase in FPSO projects could have been considered easy wins for suppliers, suppliers must act differently if they are to benefit. The responsibility is now firmly on suppliers to a) keep pace and b) demonstrate that they have the flexibility, and capability, to deliver on similarly bespoke projects. Suppliers must continue to innovate to ensure that their products can fit the need for speed and flexibility that the Chinese market demands. They must also be ready to take on a collaborative approach on any project – ensuring that they can add value by consulting at every stage of delivery; having a great product is no longer enough.