with Stanley Li, T.D, Williamson China
While there is no shortage of studies containing facts and figures about the Chinese Oil and Gas industry, we are preparing the first report that concentrates on the perspectives of managers on the field. Can you please begin by providing our readers with an overview of your career trajectory to date?
I studied Civil Engineering in Beijing, graduating with a B.S degree in 1982. Later, I successfully completed my MBA degree at UTA (University of Texas at Arlington).
After graduation in 1982, I worked for Beijing Gas & Heating Engineering for about 5 and half years, then went to Canada participating a program study at the University of Alberta and working at Consumers Gas at Toronto, Ontario.
I returned to China in 1990, and later I joined BTR Flow Control Division (Now part of the Flowserve Corp.). Then in July 1999 I joined TD Williamson and worked for TDW since then.
Can you tell us about those early days? How difficult was it to open the office in China? What need did the company see in the market that spurred it to establish a presence here?
TD Williamson started its business with Chinese customers, namely CNPC in the early 1980s. We had the first direct customer order from China in 1982. After that, we had some business through various representatives and distributors. In the 1990s, the whole Asia-Pacific region were covered by a TD Williamson International Sales Manager, he was based in the US and he had to travel to China, Japan, Singapore, Australia and other ASEAN countries regularly.
In the late 1990s, the company decided to open a subsidiary office in China in order to make a greater commitment to the market.
Opening the office was not difficult, but achieving growth was more problematic. TD Williamson offers both products and services to the pipeline owners and operators; when we opened the office, our primary focus was on product sales. Products are a relatively easier business (Compare with Service) and customers see the benefits—particularly when you have technology that is not otherwise available to them. We viewed having a product-based business as more feasible that time, but we do not intend to rely on selling products alone.
Providing services in China is not particularly easy; if you talk to the big oil and gas service providers, they could tell you a lot more about that than me! The customers here would prefer to buy the equipment, then do the work themselves. Or rely on in-house service team or local low cost service providers. They normally do not want a foreign service companies to do the job for them. We started to make market investigation in early 2000’s. In 2007, the company decided to open a service center in Shanghai, mainly focused on Hot Tapping and Plugging service.
How did TDW break into the services market?
Through good marketing, to an extent. But the main factor by that time was the fact that we knew our customers well. We had done some service jobs for Petrochina, SINOPEC and CNOOC, and other smaller companies offshore.
However, we do not believe that we can provide service to those companies for all jobs on constant bases, those we did for them were all special jobs. When opportunities arise, we will take them; as for everyday business, we have to find our targeted customers. We have made investigations and have concluded that we will have more opportunities working with Foreign Direct Investment companies in the Plant & Process Industry.
There are some places in Eastern China where our potential customers are more concentrated, such as Shanghai Chemical Industry Park, commonly referred to as SCIP. The biggest operation in SCIP is SECCO, a joint venture company of BP and SINOPEC. The other such places is Nanjing Chemical Industry Park, where BASF-YPC is the biggest operation.
To provide a plant service, you must be near your customer. The location of our service center amongst that cluster is therefore strategic. Business fluctuates but we have long-term contracts in place. When there is a need, they contact us and we are ready to help.
You mentioned prior to the interview that you currently have technicians at the service center, and on occasion you also bring in additional support from outside. How does that process work?
The everyday workload cannot justify a large staff. The technicians are specially trained and we cannot afford to keep them if they do not have work to do. They need to be recertified and we do this on an annual basis.
The permanent staff does the everyday work, —particularly non-special Hot Tapping and Plugging work.
Hot Tapping and Plugging work are needed when client have to do maintenance or emergency repair on live pipeline without shutting it down. Some jobs are in a very difficult conditions. For larger opportunities and more sophisticated jobs, we bring in the higher-level technicians, mainly from Singapore and Australia, where our biggest service facility in the Asia-Pacific region is based. TDW also has service facilities in Thailand, Indonesia and India. but generally we do not bring in technicians from there.
What kind of revenues does this subsidiary generate?
Annual revenues have fluctuated; the highest being USD 13 million, USD 6 million being the lowest. We anticipate between USD 7 and 8 million this year. Revenues are highly dependent on the contracts that we are able to secure and timely successful execution.
What could be done to make business more consistent?
You have to have a service capability available—this is a constant headache for all companies. It is a chicken-and-egg situation; if you do not have the facilities and qualified personnel, you will not receive those opportunities. However, if opportunities are not forthcoming, one is very reluctant to invest in creating the facilities. Investment always has to be justified.
When discussing the Chinese subsidiary with headquarters, how do you describe its role in terms of the whole organization?
I do not have to say much, as our top management is keenly aware of the significance of this market. It is simply a matter of how the company here can be grown with its present resources. When we see an opportunity, investments can be made – provided that they can be justified. We do not want to make a big investment for a one-off. The management has to consider internal competition; if investing a large sum in China will bring a higher return than from other countries, we will do it. Regardless of company size, resources are always limited. When we see the opportunity and we seize it, investment will come. However, currently there is a bigger growth in India and Australia for TDW—higher than in China.
China is looking to double its pipeline network over the next 5 years. There are pipelines coming from Russia, Myanmar, and Central Asia; the second and third East to West pipelines within the country are too coming soon. Downstream, the country is going to increase refining capacity to 15 million BPD. Are you positioned to take advantage of this scenario?
Yes, we are ready. But with regard to the construction of new pipelines, we have some products that are required for this. However, our main business comes from pipelines that are already in operation.
There are about 60,000 km of transmission pipeline already built and operated by PetroChina alone and therefore we are very optimistic about the future. There will be considerable opportunity for pipeline maintenance and emergency repair. As the infrastructure ages, more opportunities arise.
The system of building and operating pipelines in China differs greatly with the one that exists in the US. The American model operates on a contractualized pipeline system, entailing a deregulated and open market. China’s pipeline system, on the other hand, follows the model generally found elsewhere in the world, where the national oil and gas companies own the pipeline and the product that flows through it. Some analysts find this system problematic. Geoffrey Styles, the MD of the energy consulting firm GSW Strategy Group, said, “It comes down to what are the motivations of the people that own the pipeline. If it is to control the market, then it will be difficult [for private companies and US-based companies]. On the other hand, if the party that owns the pipeline is more concerned about developing the market and resources, even if it is a proprietary pipeline, they might want to make it work.” What is your understanding of the Chinese pipeline system? Does it adequately address the needs of this country, or would a shift toward a more open, ‘Westernized’ system prove beneficial?
I guess it will be a long way to go to shift to an open and “westernized” system. When someone making investments building the pipelines, they aim to develop the market but at the same time, they would like to own and control this market. Ultimately, someone has to own the pipelines, whether it is the three national oil companies or someone else. Although these three main companies control the main branches of the pipelines, when the pipelines reach the provinces, typically local companies are set up to create further extensions from the main transmission lines such as East-West trunk. While they are reliant on this main trunk for the oil and gas, as business entities, they are separate from the national companies. Regarding the management of the line, there are many different policies. There are also joint ventures. However, I do not envisage foreign ownership of pipelines. For us, our business is to provide service to pipeline owners and operators.
Do these local owners understand the value and quality that a company like TD Williamson can bring?
Some do, but not all of them. We have been communicating with them but we need to do a better job.
If there is a problem with a pipeline, it is likely that it will have to be shut down until repairs are made if there were no Hot Tapping & Plugging technology. This leads to revenue loss. Our unique strength is that we can do repairs while keeping the line running. Potential clients have to evaluate the cost of our fees against the losses incurred from shutting down their pipeline or other repair options. Sometimes, this is not taken into consideration as the hiring cost is the only thing that they think about. In this case, we have to convince them of the value we bringing in.
Chinese companies are placing increased emphasis on safety and quality, and recognition of the value of working with foreign companies is growing. If we were to come back in five years to do another report, how will TD Williamson have developed in light of the changing situation in China?
Our goal is to double revenue within the next five years. The company as a whole, have achieved this for two previous five-year periods and market projections indicate that we will do so again.
We have limitations in terms of people and tools, especially for Pipeline Corrosion Inspection Service, (In Line Inspection), but not in terms of opportunity.
You have been at this company for ten years. What do you want to achieve with your time here?
To double the revenue! Also, I would like to increase our service capacity. We want to get all of our global services up and running in China as well.