Bassoe: The offshore rig market should love China’s energy independence policy

With nearly 60 offshore rigs, China is doing everything it can to boost oil and gas production. And the country’s energy independence policy is keeping rig supply out of the global market.

By: David Carter Shinn, Bassoe Offshore

Sudden demand from a wide range of places has driven up offshore rig utilization.

For jackups, the Middle East came first, then Mexico and Malaysia, and now West Africa and the North Sea are ramping up activity. Since this time last year, the number of jackups on contract has increased by about 25 rigs, and this number doesn’t count another 15 or more rigs which haven’t started newly awarded contracts yet.

The floater market hasn’t experienced the same degree of growth. But North Sea demand for harsh environment rigs along with new tenders in the US Gulf of Mexico, Brazil, West Africa, Egypt, and South East Asia is at least keeping the market stable.

Among all this, it’s easy to forget about rig demand in China.

The main reason China gets overlooked is that virtually all the rigs drilling in the country are Chinese-owned, and opportunities for international contractors are scarce.

But China should be involved in any conversation about rig demand because they use so many of the world’s rigs. With nearly 60 rigs on contract (and more coming) according to Bassoe Analytics, they’re the largest market in the world – bigger than Saudi Arabia, and more than twice as big as the US and Norway.

Chinese energy independence is one of the best things to happen to the global rig market

China currently produces about 4 million barrels of oil per day. Compared to the US, which has more than doubled output since 2005, China’s production has only grown by around 30%.  Although China is one of the ten largest producers, they’re still about 25–40% less than the top three (the US, Russia, and Saudi Arabia).

As the second largest consumer of oil (and world’s largest importer), China has made it clear that it wants to become more energy independent.

While most of the major independent oil companies continue keeping their capital investments in check, Chinese oil companies are planning on spending nearly $80 billion in 2019, according to an article from Bloomberg earlier this year.

The goal is to increase production by up to 50%, or another two million barrels of oil per day. Offshore production will contribute to this effort, and that’s why we’re seeing more rigs going to work in the country.

COSL, China’s largest offshore drilling and services company (and one of the world’s largest rig owners) has moved rigs back to China from other countries during the past year. They’ve also helped themselves to six stranded newbuild jackups and have put all of them to work in their domestic market (primarily Bohai Bay and the South China Sea).

Jackup and floater markets to benefit

At a time when jackup rig counts are increasing in Malaysia, Indonesia, and other Asian countries (where up to 15 rigs could be added over the next year) along with Mexico and the Middle East, oil companies are starting to have to look much harder for jackup rigs than they used to.

With China’s offshore rig demand at all-time highs and expectations that it will strengthen, China is making the global market tighter by pulling in supply that won’t continue competing internationally.

This isn’t just good for jackups, which account for around 80% of the rigs in China. It’ll also benefit floating rigs as China further develops deepwater areas where six of the ten floating rigs on contract were built in the 70s or 80s.  COSL, who has one semisub under construction, and other Chinese contractors could take steps to grow their fleets in response to China’s need for more deepwater rigs.

China has also been increasingly open to allowing international oil companies into deepwater fields. For example, ENI has a cooperation agreement with CNPC. ENI contracted the Dhirubhai Deepwater KG2 from Transocean for a recent drilling program in the South China Sea, and more opportunities could arise for international drilling contractors to put drillships and semisubs into the country.

Thanks to their energy independence policy, China will keep a large and growing chunk of rig supply away from everyone else.

Offshore Energy Today has shared the article above with permission from the author. You can read the original post at Bassoe.no.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Offshore Energy Today.