How China Became a Major Producer of Oil And Gas Equipment

8425255831_cce1d94563_k

China, the world’s most populous country, became the world’s largest energy producer in 2009, the largest energy consumer in 2011, and the largest net oil importer in 2014. One factor that has bolstered China’s influence in the global energy market is its emergence as a major player in manufacturing and exporting low-cost, high quality drilling equipment.

When I started my work 15 years ago, China was a very different market in the upstream division (exploration and production) of oil and gas. Because major oil-producing countries exclusively purchased equipment with American and European standards, China was barred access to the international market. These standard requirements, at the time, could simply not be met by Chinese companies.

At the same time, countries like Iran were experiencing gaps in the industry after regional warfare disrupted their oil and gas sector. After the Iranian revolution in 1979, oil and gas experts couldn’t recognize the needs of the industry and external constraints prevented expansion. Instead of purchasing equipment, Iran would rent, having no standard for ordering equipment. This weakness was left unconsidered and unresolved for decades.

As an Iranian professional in the oil and gas industry, it was my mission to standardize financing and leasing methods for countries like Iran, and create a road map to resolve these crippling issues.

After recognizing the many unsatisfied needs of the Iranian market, my company started working to address them. At the same time, we evaluated the weakness of the Chinese market in the upstream division of oil and gas. As it turned out, the solution came in linking these subjects together.

First, we helped Chinese manufacturers produce equipment based on European and American standards. This was a huge unmet need of Iran’s market at the time, and Chinese companies had very limited experience with production and the exportation of oil and gas equipment. Still at the early stages of adopting international stages, their activities were limited to China’s domestic market and several other countries.

Helping China shift focus from importation to production was a breakthrough for them as much as it was for their buyers. Costs decreased, and massive job creation led to economic growth. Joint ventures with American companies allowed Chinese manufacturers the benefit of Western technology combined with low labor costs. The record of production for Chinese companies in exportation now exceeds 1,000 rigs; Chinese yards are now building more jack-up rigs than all other yards in the world put together.

At first, many traditional countries around the Persian Gulf were skeptical about using Chinese equipment, but China built trust in the market by offering high-quality products comparable to American and European equipment, but at a much lower price. Products made in China with American quality were introduced in Saudi Arabia, Russia, Iran, Africa, Kuwait and Venezuela, which began to order from Chinese manufacturers in the upstream division.

This increased the sale in upstream along with downstream (refinement, distribution, etc), as the same Chinese manufacturers once struggling in the market started to produce more.  Due to the increase in operating activities my business created, the number of Chinese manufacturers increased tremendously. China created joint ventures with American companies, making them one of the biggest producers of equipment in the upstream division in offshore and onshore equipment.

The boom in China’s economy was helped by the many factories and jobs created to produce equipment and sub-equipment. These factories flourished thanks to China’s major economic strengths: hard working citizens, strong infrastructure and consistent methodology. One cause for concern, however, has been China’s low level of consumerism, which accounts for just 28 percent of its GDP (as opposed to the U.S. 76 percent). Lengthening vacation time was one policy introduced to remedy this.

Encouraging spending has helped the economy grow even more, and experts surmise that consumer spending could reach $67 trillion over the next decade if shopping sees a greater boom. Energy consumption has grown even faster than consumerism: In 2014, China’s oil consumption growth accounted for about 43 percent of the world’s oil consumption growth, more than one-third of the global demand.

A lot has changed in the past 15 years in China, the Middle East, United States and across the globe. The competition for market share of oil and gas equipment, which used to be between American and European companies, has shifted to competition between Chinese companies in the last five years. I contribute this success to the reverse engineering method adopted by Chinese manufacturers.

Today, China is highly invested in research and development to help create more jobs and technology in an upstream market. These investments supported China’s subsequent rise to the second largest manufacturer and exporter of oil and gas equipment and services in the onshore and offshore division. China ranked as the second greatest supplier of oil to their domestic market, a trend expected to continue up until 2025, improving both the country’s GDP and its oil consumption. Because growing demand for oil outpaces their domestic production, China is also building strategic oil reserves to ensure supply remains stable.

China is also the world’s greatest carbon emitter, so the nation has set into motion ambitious plans to diversify their energy sector with renewable energy sources like solar and wind. But as the population continues to climb, it’s unlikely this will hinder oil and gas industry’s significance. We can likely expect the mutually beneficial relationship between Chinese manufacturers, oil-producing nations and suppliers to remain strong, steady and lucrative.

Featured image: Asian Development Bank via Flickr.

Reza Mostafavi Tabatabaei is an entrepreneur, investor, activist and international businessman who specializes in the oil and gas industry. He is an admirer of Middle Eastern art, culture, and philanthropy, which you can read out more about on his adjacent website RezaMostafaviTabatabaei.org

Oil in Abu Dhabi: A Brief History of the Industry

7116609463_c6516a2733_k

Abu Dhabi, capital of the United Arab Emirates (UAE), holds 94 percent of the country’s oil reserves, and about 9 percent of the entire world’s. The populous region’s oil industry has transformed the city it from a poor fishing town into one of the richest cities on the planet.

The industry began to show glimmers of promise after the decline of the city’s pearl trade, when an agreement to start exploration for oil was made in 1936. The Petroleum Development (Trucial Coast) signed this agreement with the ruler at the time, Sheikh Shakhbut.

204899838_21277ef78d_b

In 1939, a seventy-five-year concession was signed with a number of foreign oil companies (FOCs), but things were far from smooth sailing: WWII stalled the operation for years, and local communities suffered from economic hardships, malnutrition and disease.

Gravity surveys finally began in 1946, but stalled in 1950 when the region’s desert terrain and sand dunes proved too much for exploration vehicles. Then, a drilling attempt of Ras Sadr turned up dry, and more drilling off the seismic coast had to be plugged and abandoned.

It wasn’t until 1958 (on the Umm Shaif field) and 1959 (Merban No. 3, later named Bab) that drillers struck commercially viable oil. Oil production and exports started in 1962 and 1963; after 1966 the city amassed enough wealth to transform the region and support the formation of the UAE in 1971.

In 1971, the state-controlled Abu Dhabi National Oil Company (ADNOC) was formed, strategically aligned with Western oil companies like Exxon, Shell and BP. Two oil refineries opened by ADNOC in the early 1979 and 1981, making the UAE entirely self-sufficient in petroleum production.

16044160715_d0cafc21f4_k

Western alliances helped bring Abu Dhabi the best technology for decades more of momentous discoveries. The original concession ended in 2014, so ADNOC is currently allowing the original foreign oil companies it partnered with to continue working before all FOC bids are evaluated and new agreements are reached.

Though the heyday of oil discovery may be over for the time being, expansion continues. Today Abu Dhabi has the sixth largest proven oil reserves (92 million barrels), and remains the eighth biggest oil producer in the world, with an output roughly 3 million barrels per day.

Kuwait to Start Offshore Oil Exploration in Two Years

Kuwait prepares to get into oil exploration as they set their sails on an offshore program planning to start in two years. Kuwait expects the program to boost oil output capacity for the country.

Oil رضا مصطفوی طباطبایی

Kuwait Oil Company’s Manager of Planning, Bader Al Attar, said the country’s plans are to add more than 700,000 oil barrels per day from offshore and onshore sources. Currently, most of the country’s oil production originates from the onshore Burgan field, which is the second largest in the world.

Attar told the media that Kuwait wants to up the production capacity of barrels per day to 3.5 million by the last quarter of 2015. He went to say that he expects an output capacity of 4 million bpd by 2020. One of the reasons that there is such a sense of urgency is that KOC hopes to make up for the production lost from two shut oil fields of theirs.

Attar and Kuwait have high hopes for increasing their oil production capacity in their search for new areas. In the meantime, they plan to milk their other energy investments.