How The West Was Won
While the offshore oil and gas industry reels from depressed crude oil prices, one Chinese shipbuilder sees investment opportunities in the Gulf of Mexico. The Chinese State Shipbuilding Corporation (CSSC) is a state-authorized investment firm with 60 proprietorship enterprises and shareholding companies in its portfolio has been expanding.
The conglomerate has been a fixture in the Chinese shipbuilding industry since 1982 and reorganized in 1998 under a state plan to globalize the company. In 2013, it established its foothold in the Western Hemisphere with the expansion of operations in Houston and the unveiling of China’s first and only deepwater rig.
CSSC doubled its revenue in 2014 with a record-high $22.9 billion and its offshore ventures were mostly responsible for the growth. Known as a shipbuilder, CSSC has quickly become renowned for drilling, construction, production, transportation, logistics and support. And expansion into Houston contributed to this because while rig counts in the United States have fallen due to declining oil prices, CSSC has continued to invest.
In the past 12 months, the total crude oil and natural gas rig counts in the U.S. fell by 54 percent and 31 percent respectively. Currently, only 78 percent of rigs in the GOM are contracted and analysts don’t anticipate a recovery soon. According to the International Energy Agency (IEA), crude oil prices fell to their lowest in three months in July and it is expected that demand will remain slow through 2016.
Meanwhile, OPEC production has hit a three-year high in June and the lifting of sanctions against Iran, who has the third-largest oil and gas reserve, will only increase the surplus.
Despite market conditions, CSSC envisions an investment opportunity as companies are forced to become more cost-effective in offshore operation and equipment.
Chinese offshore industries offer lower manufacturing cost. Shanghai Waigaopia Shipbuilding Co, Ltd (SWS), a CSSC offshore equipment design and manufacturing subsidiary, is reporting increased inquiries and orders from overseas.
SWS is a designer and manufacturing in the offshore market and builder of FPSO. Today, CSSC reports ten new orders have already been placed for FPSO platforms.
CSSC has no plans to slow production and does acknowledge the risk, but its ability to adjust to the market conditions has allowed it to maximize profits. CSSC asserts it sees growth potential in the offshore markets.