China's Role in Advancing FPSO and FLNG Technology for Global Offshore Energy

Introduction

Floating Production Storage and Offloading (FPSO) units and Floating Liquefied Natural Gas (FLNG) units play a critical role in the offshore oil and gas industry, enabling efficient extraction, processing, and storage of hydrocarbons in remote and deepwater locations. FPSOs are designed to process oil and gas, store the products, and offload them to tankers, making them essential for long-term operations far from land. FLNG units, on the other hand, process and liquefy natural gas directly at sea, eliminating the need for onshore facilities.

In recent years, Chinese shipyards have emerged as key players in the construction of these complex vessels, offering cost-effective, advanced solutions to global energy companies. China’s strategic investment in shipbuilding technology, modular construction, and automation has positioned its shipyards to meet the growing global demand for offshore production infrastructure. These vessels are crucial for energy security and play a pivotal role in the global transition towards cleaner fuels, especially as natural gas becomes a key component in reducing carbon emissions.

1. Strategic Role of FLNG and FPSO Units in Global Energy Markets

FPSO Units: A Solution for Remote Oil Fields

FPSOs are vital in producing hydrocarbons from remote offshore locations where conventional infrastructure, such as pipelines, is unavailable or impractical. Their ability to store, process, and offload oil and gas makes them essential for deepwater exploration. As energy companies push deeper into offshore reserves, the demand for FPSOs is rising, with particular focus on Brazil’s pre-salt fields, West Africa’s offshore blocks, and Guyana’s booming oil fields.

• Key Markets:Brazil: The pre-salt oil fields in Brazil are among the world’s largest, requiring large FPSO units. Petrobras, Brazil’s national oil company, has ordered several FPSOs from Chinese shipyards, leveraging their cost-competitiveness and rapid construction capabilities.Guyana: ExxonMobil’s success in Guyana’s Stabroek Block has resulted in significant FPSO orders. In 2023, ExxonMobil had six FPSOs in operation or under construction in Guyana, with multiple units being built at Chinese shipyards.

FLNG Units: Unlocking Offshore Gas Reserves

FLNG technology is crucial for monetizing remote gas fields, allowing for the liquefaction of natural gas offshore and transporting it directly to markets without relying on expensive onshore liquefaction plants. The growing importance of natural gas as a cleaner energy source has fueled the demand for FLNG units, especially in regions like Southeast Asia, West Africa, and East Africa, where large offshore gas reserves are under development.

• Key Markets:Africa: Mozambique, Nigeria, and Mauritania are ramping up investments in offshore gas fields. Chinese shipyards, particularly Wison Offshore & Marine, have secured significant FLNG contracts in these regions, cementing their role in Africa’s gas infrastructure development.Southeast Asia: Countries like Indonesia and Malaysia are actively investing in offshore LNG projects, where FLNG units are critical to overcoming geographic challenges.

2. The Role of Chinese State-Owned Enterprises (SOEs)

China’s shipbuilding industry is dominated by large state-owned enterprises (SOEs), including China State Shipbuilding Corporation (CSSC), China Shipbuilding Industry Corporation (CSIC) (which merged with CSSC in 2019), and COSCO Shipping Heavy Industry. These companies receive significant government support, enabling them to expand their capabilities in the offshore oil and gas sector.

Key SOEs and Their Contributions:

• CSSC: As China’s largest shipbuilding conglomerate, CSSC operates several of the country’s most advanced shipyards, including Shanghai Waigaoqiao Shipbuilding (SWS) and Dalian Shipbuilding Industry Corporation (DSIC). These shipyards specialize in large, complex offshore units like FPSOs and FLNGs. CSSC is also actively investing in next-generation shipbuilding technologies, such as modular construction and digital twins.
• COSCO Shipping Heavy Industry: COSCO is a leader in FPSO conversions, particularly in converting Very Large Crude Carriers (VLCCs) into FPSOs, providing a cost-effective solution for oil companies. COSCO’s strategic focus on deepwater and ultra-deepwater FPSOs aligns with global energy trends.
• CNOOC (China National Offshore Oil Corporation): CNOOC has both an operating and construction role in offshore projects. It often collaborates with shipyards to build FLNG and FPSO units for its domestic and international oil and gas projects.

Government Support and Initiatives:

• Made in China 2025: The Chinese government’s industrial policy promotes self-sufficiency in high-tech sectors like shipbuilding. FLNG and FPSO construction falls under this initiative, which has resulted in extensive R&D support, favorable loans, and tax incentives for Chinese shipyards.
• Belt and Road Initiative (BRI): The Belt and Road Initiative plays a key role in extending China’s influence in global energy infrastructure. Through BRI, Chinese shipyards have expanded into key oil and gas-producing regions like Africa and Latin America, securing large offshore construction contracts.

3. Chinese Shipyard Capacity and Expansion

China’s shipyards have developed the infrastructure and capacity to compete with global leaders in offshore construction, such as South Korea’s Samsung Heavy Industries and Singapore’s Keppel Offshore & Marine. Over the past decade, Chinese shipyards have expanded both their physical facilities and technological capabilities to meet the growing demand for complex offshore units.

Shipyard Capacity:

• Dalian Shipbuilding Industry Corporation (DSIC): DSIC, one of China’s largest shipyards, has extensive capacity to construct newbuild FPSOs and FLNG units. Its dry docks and fabrication yards have undergone significant upgrades to handle multiple large projects simultaneously.
• China Merchants Heavy Industry (CMHI): CMHI’s Haimen and Shekou shipyards are heavily focused on offshore vessel construction, including FLNG units. CMHI’s success with the FPSO Liza Unity for ExxonMobil’s Guyana operations reflects its ability to meet international standards for large-scale offshore projects.
• CIMC Raffles: Based in Yantai, CIMC Raffles has specialized in semi-submersible platforms, FLNG units, and FPSOs. Its modular construction techniques allow for efficient project execution, reducing lead times for offshore projects.

Metrics:

• Total Chinese Shipyard Capacity: By 2023, Chinese shipyards were constructing or converting approximately 40% of the world’s FPSOs. This includes both newbuilds and conversions, with major clients being Petrobras, ExxonMobil, and CNOOC.
• Construction Lead Times: Due to advancements in modular construction and automation, Chinese shipyards have reduced lead times for newbuild FPSOs and FLNGs to 30-36 months, compared to the global average of 40-42 months.
• Investment in Expansion: Chinese shipyards continue to expand their capacity. In 2022-2023, CSSC and CMHI announced plans to invest $2.5 billion in upgrading facilities for next-generation FLNG and FPSO construction, focusing on digital shipbuilding technologies.

4. Technological Innovations Driving China’s Competitiveness

China’s ability to compete in the FLNG/FPSO market is heavily influenced by its investment in advanced shipbuilding technologies. The industry’s focus on digitalization, automation, and sustainable energy technologies has enhanced the efficiency and environmental performance of the units built in Chinese shipyards.

Key Innovations:

1. Modular Construction:
2. Digital Shipbuilding:
3. Sustainability and Decarbonization:

5. Recent Metrics and Key Contracts (2022-2023)

Chinese shipyards have secured major contracts for FPSO and FLNG projects over the past two years, reflecting their growing importance in the global offshore energy market. Below are key recent contracts and metrics:

FPSO Metrics and Contracts (2023):

• Global FPSO Market Share: Chinese shipyards accounted for 40% of new FPSO orders in 2023. Notable contracts include orders from Petrobras, ExxonMobil, and Equinor for Brazil’s pre-salt fields and Guyana’s Stabroek Block.
• FPSO Liza Unity (ExxonMobil, Guyana): Delivered by CMHI in 2023, this FPSO has a production capacity of 220,000 barrels of oil per day (bpd) and a storage capacity of 2 million barrels.
• FPSO Bacalhau (Equinor, Brazil): Delivered by DSIC, the FPSO Bacalhau is one of the largest in the world, with a production capacity of 220,000 bpd and storage for 2 million barrels. It is expected to play a critical role in Equinor’s deepwater pre-salt operations.

FLNG Metrics and Contracts (2023):

• Wison Offshore & Marine’s African FLNG Project: In 2023, Wison secured a contract to build a 1.5 MTPA FLNG unit for an African client. This unit, valued at $700 million, will be operational by 2026, marking Wison’s growing influence in the FLNG market.
• CIMC Raffles’ FLNG Contract in Southeast Asia: CIMC Raffles is building a 2 MTPA FLNG unit for a Southeast Asian client, with delivery expected in 2025. This unit, valued at $1 billion, underscores China’s growing role in Asia’s LNG supply chain.
• FLNG Market Share: Chinese shipyards are expected to capture 30% of the global FLNG market by 2025, driven by orders from Africa and Southeast Asia.

6. Broader Impacts and Geopolitical Considerations

China’s Influence in Emerging Energy Markets

China’s growing dominance in the FLNG and FPSO market is intricately linked to its broader geopolitical strategies. Through initiatives like the Belt and Road Initiative (BRI), China has strengthened relationships with energy-rich countries in Africa, Latin America, and Southeast Asia. These regions rely on Chinese shipyards for their offshore energy infrastructure, providing China with both economic leverage and geopolitical influence.

• Africa: Mozambique, Nigeria, and Mauritania are key players in China’s energy diplomacy. Chinese contractors are heavily involved in building LNG infrastructure in these regions, giving China significant influence over their future gas exports.
• Latin America: Brazil remains China’s largest partner in the offshore oil sector. Petrobras, Brazil’s state oil company, relies heavily on Chinese shipyards for FPSO construction. This relationship is strategically important for both countries, as Brazil seeks to expand its offshore production and China aims to secure long-term energy supplies.

Energy Transition and China’s Role

China’s growing investment in FLNG technology aligns with the global push for cleaner energy. As the world transitions from coal and oil to natural gas, China’s shipyards are poised to play a pivotal role in supplying the infrastructure needed for this transition. LNG is considered a bridge fuel that can help countries meet their short- and medium-term climate goals while renewable energy technologies mature.

Economic Impact on China’s Shipbuilding Industry

The FLNG and FPSO market has provided a significant boost to China’s shipbuilding industry, which has traditionally relied on lower-margin commercial shipping contracts. Offshore energy projects offer higher margins, greater technological challenges, and the opportunity for Chinese shipyards to establish themselves as global leaders in high-tech maritime engineering.

• Employment and Economic Growth: The expansion of China’s FLNG and FPSO capabilities has created thousands of jobs across shipyards, supply chains, and engineering firms. The industry also contributes to China’s overall GDP growth, particularly in coastal provinces like Jiangsu, Zhejiang, and Guangdong, where many shipyards are located.

7. Challenges and Risks

Despite its success, China faces several challenges in maintaining its competitive edge in the FLNG and FPSO markets:

• Technological Competition: While China has made significant advances in shipbuilding technology, it still faces stiff competition from South Korea and Singapore, both of which have more experience in building ultra-large and complex FLNG units.
• Environmental Regulations: As global environmental standards tighten, Chinese shipyards will need to accelerate their adoption of green technologies. Failure to meet new standards could result in lost contracts, especially from international oil majors that are increasingly focused on sustainability.
• Geopolitical Risks: China’s involvement in energy infrastructure projects across Africa, Latin America, and Southeast Asia exposes it to geopolitical risks, including changes in government, political instability, and shifting trade policies. These risks could affect the profitability and timeline of future projects.

8. Future Outlook and Strategic Directions

Increasing Demand for FLNG and FPSO Units

As global energy demand continues to rise, particularly for natural gas, the need for offshore production infrastructure will grow. Chinese shipyards are expected to capture an increasing share of the FLNG and FPSO markets, particularly in emerging regions like Africa, Latin America, and Southeast Asia. The global FPSO market is projected to grow at a CAGR of 5% from 2023 to 2030, while the FLNG market is expected to grow at a CAGR of 6.7% over the same period.

Digital Shipbuilding and Automation

As Chinese shipyards continue to integrate digital twin technology, 3D modeling, and AI-driven analytics into their construction processes, they will be able to reduce costs, improve precision, and deliver projects more efficiently. By 2030, it is estimated that 60% of Chinese shipyards will use advanced digital tools in their shipbuilding processes, enhancing their global competitiveness.

Sustainability and Decarbonization

China’s focus on reducing the carbon footprint of its shipyards and offshore projects will continue to shape the future of FLNG and FPSO construction. The adoption of carbon capture and storage (CCS), waste heat recovery, and dual-fuel engines will be key to maintaining China’s competitiveness in a market increasingly driven by sustainability.

Conclusion

China’s ascent in the FLNG and FPSO markets represents a significant shift in the global offshore energy industry. Through strategic investments, government support, and technological innovation, Chinese shipyards have become important players in the construction of complex offshore units. With a strong presence in emerging markets, growing demand for natural gas, and a commitment to sustainability, China’s shipbuilding industry is well-positioned to continue expanding its influence in the global energy landscape.

As the world transitions toward cleaner energy sources, China’s expertise in building FLNG units and FPSOs will be crucial in meeting the growing demand for natural gas and reducing carbon emissions in the offshore oil and gas industry. Chinese shipyards, supported by state-owned enterprises and strategic government initiatives, are set to play an increasingly important role in the global energy transition.

Kjeld Friis Munkholm Associate Parter at Vejle - China Business Center

www.munkholmconsulting.com

? 2024 Kjeld Friis Munkholm. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means without the prior written permission of the author. transmitted in any form or by any means without the prior written permission of the author.