Deepwater drilling expenditure out of Asia-Pacific was $6.79 billion in 2010, and is expected to grow to $14.35 billion by 2016.
Around 75-80% of the expected increase in offshore drilling expenditure in the next five years is expected to be contributed from the deepwater drilling segment, due to the planned deepwater drilling operations with major contributions from China and Australia
As a result of substantial major offshore discoveries in particular offshore regions in Asia and subsequent drilling activity, offshore drilling expenditure for the Asia-Pacific region has seen an overall steady rise in recent years.
The current trend is a shift towards an increase in deepwater drilling expenditure, with shallow water drilling expenditure being superseded by the former, as more and more international as well as National Oil Companies (NOCs) are successfully venturing into deepwater exploration and production for finding huge oil and gas reserves.
NOCs such as CNOOC and Petronas are planning to increase offshore drilling expenditure in the near future, a move facilitated by deepwater reserves that are promising in terms of production.
Factors like exploitable hydrocarbon reserves in offshore China and an abundance of gas reserves in offshore Australia are prompting major players like CNOOC and Shell to take up initiatives in offshore drilling.
Even international oil firms like Husky Energy, Austria-based firm ROC British Petroleum, and Eni SPA are looking forward to investing in offshore drilling operations in Asia-Pacific.
China is pursuing active development plans and is ready to boost its deepwater drilling activity in the next five years.
For instance, CNOOC’s rising deal activities of the company have been driving deepwater drilling initiatives. CNOOC’s deal with Husky Energy has enabled China to venture into deepwater drilling operations at drilling depths of over 1,500 meters.
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China drilling update
China has emerged to become a key nation in deepwater operations in the Asia-Pacific region. With a recent drill in the Liwan3-1 block offshore China using the CNOOC 981 rig, the threshold depth for offshore drilling has taken a leap from 300 meters to 3,000 meters, which is a breakthrough in the Chinese offshore drilling industry.
Increasing domestic demand from Chinese markets is the primary factor that has motivated serious attempts at reducing energy dependence.
Deepwater drilling is an area that involves high risks and high returns. China as a nation has always stayed conventional in its approach towards hydrocarbons, until recently, in May 05, 2012, when it saw the success of the first deepwater drilling operation in the country.
Chinese energy firms believe that it will take about a decade to completely develop the deepwater resources offshore China to their fullest potential. CNOOC and CNPC are the companies that are actively involved in the current development plans, and they are expected to play an active role in the upcoming well development modules in the coming decade.
Chinese offshore exploration national oil company CNOOC (China National Offshore Oil Corporation) Ltd. opened up China’s first indigenously built deepwater rig, the Hai Yang Shi You 981 semi-submersible in May 2012 for driving its deepwater E&P operations in the South China Sea.
The high-specification semi-submersible possesses an operational capability of drilling in water depths of up to 3,000 meters. The South China Sea is expected to be among the top four largest deepwater areas in the world, along with the US Gulf of Mexico, offshore Brazil, and offshore Angola.
After the first deepwater discovery off the coast of China, Liwan 3-1 was made by Husky Energy Inc. in 2006, in 2009 and 2010 respectively, two more discoveries, Liuhua 34-2 and Liuhua 29-1, were made by Husky. The Pearl River Mouth Basin is also expected to be a major target region for deepwater exploration and production for the next five years.
Active Exploration
Domestic demand from Australia and New Zealand and demand from other regions in the Asia-Pacific have helped Australia emerge as the LNG hub of Asia-Pacific and it is expected to overtake Qatar in production by 2017.
The development plans for offshore Australia are heavily LNG-based as the reserves only contain natural gas. Since LNG is a tried and tested mode of monetizing natural gas, there are a number of major LNG projects under development in offshore Australia, such as the Pluto, Gorgon, Prelude, Wheatstone and Ichthys projects, which are being handled by Woodside, Chevron, Inpex, Woodside and INPEX (International Petroleum Exploration Corporation), respectively.
With two supermajors involved and the remaining firms also having strong backgrounds in upstream activities, the ambitious projects are highly capital-intensive. For example, Shell’s Prelude project was the first Floating Liquefied Natural Gas (FLNG) vessel to be manufactured in the world, incorporating floating production technology into the LNG value chain.
Offshore Australia is expected to see a cumulative expenditure of $3 billion in its offshore drilling industry by 2016, with deep-water expenditure rising at a greater pace than shallow-water expenditure.
These projects are highly rewarding but highly capital-intensive, and are more risky than those in other offshore regions. Since 2004, the Australian offshore oil and gas exploration industry has been venturing into deeper waters in the search for fresh gas reserves.
The 2012–2016 period is expected to witness steady growth in expenditure due to increasing demand for oil and gas, increased offshore rig day rates, and an increased level of fresh exploration activities.
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Shipbuilding boost
The growth of the deepwater and ultra-deepwater drilling industry in Asia-Pacific has led to a boost of all affiliated and auxiliary industries. One such industry that has seen a significant amount of growth is the offshore rig construction shipyard industry – especially the major industry in South-East Asia. Especially South Korea has been the biggest hub of the global shipbuilding industry.
Offshore drilling in general requires a compact and efficient fleet of vessels to render the setup complete for production. To be specific, deepwater drilling especially needs drill-ships, semisubmersibles and other vessels.
The rise in offshore drilling infrastructure demand from Asia- Pacific has created the need for high-quality construction services with a focus on innovative technology.
Korea would be the ideal location for manufacturing ships since it would minimize the logistics costs for operators and owners with assets in Asia-Pacific.
With this in mind, Korea has been seeking foreign investments into the shipbuilding industry to meet the capital requirements to support increasing demand. Q1 2012 saw Korea attract half of all the world’s shipbuilding contracts, and this trend is expected to continue in the future, with offshore drilling in the region expected to steadily rise for the next five years. An added demand is expected from high-end production equipment segments like subsea drilling equipment, Floating, Production, Storage, and Offloading vessels (FPSOs).
About The Author
Ganesh Dabholkar has more than four years of experience in delivering research assignments across the oil & gas industry. He has authored several reports in upstream and downstream sectors, and has been quoted by various magazines and journals.
He has worked at GBI Research following the completion of his MBA from Welingkar Institute of Management Development and Research, Mumbai. GlobalData is a leading business intelligence provider.
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