Dalian: Orders for offshore rigs have dropped this year as have prices, says the head of one of the leading rig builders in China.
Shi Wei, executive director of Cosco Shipyard Group and chief of the offshore division, discusses opportunities and challenges in the market.
Cosco Shipyard Group is the shipbuilding division of the state run Cosco Group.
Shi is optimistic about the offshore market in the long term, it’s just right now where there’s a headache.
“The central government has put offshore development as one of the priorities in terms of national strategy and there will be more domestic investors interested in the sector who choose to order at domestic shipyards. Chinese shipyards’ market share in the offshore market is increasing,” Shi says.
Cosco Shipyard didn’t enter the offshore sector until 2006. It currently has 27 offshore projects under construction, including eight offshore accommodation blocks.
“According to our researches, there are lots of old oil platforms going to be updated and replaced by 2017, which will also bring opportunities to us, and the central government’s support in offshore financing also makes overseas investors place orders at Chinese shipyards,” says Shi.
However, Shi admits the company is still facing lots of challenges, noting in particular the general slowdown in orders this year.
“Offshore platform operators are slowing down their orders as the oil companies are temporarily cutting expenditure on the development of oil fields, which has led to a decrease in daily chartering rates, and some oil companies also have postponed the planned bidding of drilling contracts, which means projects under construction are unable to get chartering contracts as expected,” Shi explains.
According to Shi, currently there are too many Chinese shipyards joining the competition for offshore orders. “Their expectations for the offshore market are too high, and some of them receive orders under special terms in order to improve their offshore performance,” he says.
Shi says prices for offshore products are declining , further squeezing the profit margin of the company. “The cost of financing is increasing as the banks have increased interest rates for offshore financing, and payment terms have worsened. The advance payment percentage has dropped to 10% or even lower from 30% by the end of 2008.”
In concluding, Shi says, “A market always has both opportunities and challenges. What we have to do is to find the balance point.” [27/06/14]