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Interview

with Jian Guo, Oil and Gas Advisor, INTSOK China

10.01.2012 / Energyboardroom

Mr. Guo, as INTSOK China advisor, When we met with Mr. Willumsen from Statoil China, he remarked that the Chinese offshore model was designed with help from Norwegian advisors, who were invited to the country in 1981 to discuss the dynamics of the offshore E&P system in Norway. With the benefit of an additional 30 years of cooperation, what does the Norwegian oil & gas industry offer to China today?

There is indeed quite a long history between Norway and China—notably, in the field of oil & gas. On the subject of Statoil, the company had a field operating in the South China Sea, LuFeng 22-1, which is currently being decommissioned. It was a marginal field, but required a wealth of new technology: for example, a cutting-edge subsea pump for the well. This technology, brought to China from the Norwegian continental shelf, made its debut in this region thanks to Statoil’s investment.

Statoil’s project also brought a very high standard of HSE. I am sure that CNOOC executives, with whom Statoil was partnered on the project, would speak very highly of their joint venture with this Norwegian company. The level of safety and productivity on the project, and rapport between the collaborators, holds a lot of fantastic memories.

Unfortunately, this small project is finished, but Norway’s players will continue to look for E&P opportunities in China’s upstream offshore segment in partnership with domestic enterprises. Integrated Norwegian companies like Statoil are very strong offshore—especially in deep water. Statoil is the world’s leading NOC in this sphere. They know how to manage the risks of deep-water projects, which require strong expertise in assessment, and the management of timelines and budgets.

There is a large gas field in the South China Sea—the Liwan field—that is currently operated by Husky in partnership with CNOOC. In Norway, we have a similar gas field, called Ormen Lange. This field supplies 20% of the natural gas consumed by the UK. It is similarly a very large, challenging, deep-water field, and a Statoil-operated project.

Statoil has lent much of the expertise they have developed from the Orman Lange field to CNOOC staff. Statoil’s project director was sent to China to present Norway’s expertise in the INTSOK-held technical workshops “Deep Water Gas Field Development – South of China Sea” with CNOOC. 14 INTSOK members participated in this effort, including Statoil, DNV, FMC Technologies, Aker Solutions, SPT Group, Grenland Group, Nexans Norway, Scandpower Risk Management, Sevan Marine, Roxar, Clampon, ABB, Bredero Shaw, and Bjørge AS. We shared Norwegian experiences and technologies with CNOOC in deep water.

Statoil hopes to collaborate on further Chinese deep-water projects—be it with CNOOC, or PetroChina or Sinopec, who are also interested in deep-water opportunities. There are, moreover, strong mutual opportunities in overseas markets, as evidenced by the Peregrino project in Brazil, a joint venture between Statoil and Sinochem. This project is so far quite successful, and can be a model for future partnership.

Statoil is of course the flagship Norwegian oil & gas company, but it is not the only Norwegian making inroads in China’s energy sector. Norway has a very strong service and supplier industry, which offers world-leading services, equipment, and technology to Chinese companies and international players working in China. The focus, again, is on offshore activities.

The excellence of our service providers and manufacturers can be seen in major projects such as ConocoPhillips’ PengLai19-3 project. There are a very high number of Norwegian suppliers involved. Similarly, there are many Norwegian companies supplying equipment in CNOOC’s first deep-water Semi drilling project—almost half of the value of this Semi was sourced from Norwegian manufacturers such as Aker Solutions, Kongsberg Maritime, Autronica, Wilhelmsen Technical Solutions, Marine Aluminum, Jotun, etc.

COOC has a subsidiary, COSL, which is strongly linked with Norway—it has acquired a Norwegian drilling company, Awilco, in Stravenger in 2008, and formed COSL Drilling Europe AS. The Norwegian-designed, Chinese-owned drilling equipment that is produced by this company is currently in use by Statoil on the Norwegian continental shelf. This indicates the increasing sophistication of collaboration between our two countries.

How much of this type of investment do we presently see—Chinese oil & gas companies investing into Norwegian assets?

The trend is on the rise. There has been no investment into E&P activity yet—no investment into a Norwegian field by a Chinese company—but Chinese businesses are building experience, and learning how to do business in Norway. The acquisition of a Norwegian drilling company by a Chinese service company is a landmark, and there is more investment on the horizon.

What of the status of Norwegian investment into Chinese blocks? We have mentioned the decommissioning of Statoil’s field in Lufeng22-1, and there is currently no Norwegian company operating an upstream asset in China. Is there room for improvement as the 12th 5-Year Plan further emphasizes offshore development?

You are correct: China’s government has called for increased offshore activities over the next few years, and the emphasis will specifically be on deep-water production. So, yes, this drive presents great opportunities for Norwegians, and I am sure that Norway’s companies will like to involve themselves more in deep water in China. We are ready.

For the moment, we can again look at the high level of activity by Norway’s service providers in offshore. In addition to the companies I have mentioned, there are many more examples: I would highlight Seadrill’s semi rigs for Husky and BG drilling in the South China Sea now. Our service companies, too, are ready for China’s offshore boom. We are waiting; our whole industry is ready!

In our interview with Ausenco, an Australian EPC, country manager Mr. Norman Ting told us that it is difficult to compete in China’s service sector, because the Chinese are themselves quite capable at this point, and have a much better cost offering. How have Norwegian service providers managed to overcome this challenge?

In addition to the increasing sophistication of China’s national companies, I would cite another challenge: there is, today, a full spectrum of international competition in China as well. Fortunately, Norwegian products and service companies operate in niche areas, like Subsea and Offshore Drilling. Often, our businesses are not as large as, say, Australia’s Wood Group; however, we are very strong in our niches, and often have few competitors. We create unique opportunities for ourselves.

Our players never compete on price—because of the cost of engineers, etc. at home, this would be impossible. On the other hand, if a client has some special requirement—e.g., for deep-water Semi design—one INTSOK member, Grenland Group, offers wholly unique, high-standard, high-HSE, high-spec, knowledge-intensive propositions. We also have great advisors and consultants, such as DNV, which is a company that is very exceptional, and can supply certain services that others simply cannot.

Norwegian companies are also open, and honest. By tradition, our business history and culture is very honest, and very amicable. Norwegian organizations stand by their word as well: if we say we can deliver by year’s end, barring extreme circumstances, we will. Finally, our quality is world-renowned. Chinese clients know that we offer superior quality, at an acceptable price point.

Since the Norwegian Nobel Committee awarded its Peace Prize to Chinese pro-democracy activist Mr. Liu Xiaobo in October, 2010. Beijing has delayed talks on trade with Oslo and cancelled political and business meetings. During the visit of Norwegian Oil & Energy Minister Ola Borten Moe in September, 2011, he was denied a face-to-face meeting with his Chinese energy counterparts. How do you believe this situation has affected the Norwegian O&G industry operating in China?

This is a good question. As INTSOK, we frequently discuss how to successfully do business in this market even during this period of strained bilateral political relations.

As we mentioned, in 1981, Norway was already involved in advising our Chinese counterparts in oil & gas policy. Because of this history, and because of our reputation for openness and amicability, the Chinese understand that Norwegians are great partners. Norway has also supported China monetarily without expecting payback in the early 1980s; it has spent Norwegian resources to educate Chinese leaders; it commits to a lot of charity work in the region, etc. For the Chinese, Norway can truly be a trusted friend.

I am sure that the political tension will be resolved in an intelligent and professional way by politicians from both nations. In the grand scheme of things, this tension will be a drop in the ocean, and it will be short-lived.

Furthermore, driven by the Chinese government’s efforts to separate politics and industry, Norway’s oil and gas businesses are in fact investing more in China than ever before—despite this present period of uncertainty. Even though the political situation is certainly challenging—for example, high-level Chinese officials are currently barred from visiting Norway—INTSOK’s members have not been deterred.

We are thinking of the future. For example, Norwegian companies have more vessels than ever being built in China, which is the world’s third-largest shipbuilding market. The number of JVs is rising steadily, as is investment in China-based manufacturing. Engineering and consultancy is on the rise. Infrastructure and physical investment is on the rise, and we are increasing our capacity and capability in this market. More and more Norwegian companies are entering the region for the first time.

I hope that the political issue can be resolved expediently; but, in the meanwhile, we will continue to develop our presence in this country, both for the benefit of China and Norway. Trade benefits each player involved!

What is the role of INTSOK, a global vehicle for promoting the interests of Norwegian oil companies, in advancing Norwegian businesses in China?

We supply a service, and we supply advice. We produce market reports, offer individual services for partners, offer workshops, and provide business networks. Many of our members are small and medium-sized businesses, and providing a network for them to come together is integral to their success.

I truly hope that we can bridge communities on both sides: Norwegians and Chinese together. We promote the Norwegian oil & gas industry in China, and we also hope we can introduce the Chinese oil & gas industry in Norway. We have already discussed this latter movement, and the fact that Norwegian companies are actively sourcing in China, and utilizing Chinese manufacturing. These are bilateral directions. INTSOK can be the way.

After time spent working within both Norwegian and Chinese oil & gas organizations, what lead you personally to take on this role?

I am very proud to be the INTSOK China advisor. I have a background in electrical engineering and worked for CNOOC from 1994 to 2000. CNOOC educated me from the beginning and I deeply appreciate the experience. Norway is a leading engineering hub for the oil & gas industry. We have more than 200 members, and each member has unique technology and a unique business model. I am eager to share more successful Norwegian experiences with CNOOC and hope to be a good bridge.

In many cases, I help our members to translate their presentations to Chinese partners, and I often find myself very excited about their work. Everyday I can learn more, and witness novel innovations. Norway truly seems to produce innovative ideas at a great rate, and is always thinking about how to improve oil & gas production, safety, flow assurance, and etc.

This position has educated me every day, and it is exciting to support and help unite this industry.

In our conversation with Mr. Vladimir Ryashin of INTSOK Russia, his final remark was to stress the importance of international markets like Russia and China for Norwegian energy plays, as the number of projects Norway offers at home is steadily dwindling. Looking forward at the next few years, how do you think the attractiveness of the Chinese market for your members will further develop?

First, I would like to stress that the Norwegian continental shelf remains the main market for Norwegian players, and there are still many opportunities there. The domestic market is still strong, and large oil fields continue to be discovered in Norwegian territory.

However, Norway is not enough. For those Norwegian companies that are ready to take on the challenge of going to global markets, the opportunities can be quite lucrative. Global markets are certainly interested in our offering. The U.S., Russia, China, Brazil, Australia, etc. have opened their doors.

Furthermore, global markets can also offer unique prospects that perhaps Norway cannot: for example, Norway cannot support a large shipyard, so our companies are turning to places like China to build their ships, then sending them back to Norway. In these cases, the knowhow, however, remains Norwegian.

As for the future of our companies in China, I would say that, in terms of E&P, we will continue to scan the market for opportunities. For segments like deep-water services, or offshore shipbuilding, our members will increasingly supply their expertise, equipment, and technology.

The day of this interview marks the first snow of winter in Beijing. The Chinese always believe that the ‘next spring will come.’ This is true in politics as well: Norway and China’s political relations will stabilize, and become even friendlier than before. We hope this spring will come early—and even in this deep winter, our companies are finding warm places to work with the Chinese, while each side supports the other.

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