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Beijing Orders Ships and Rigs, Builds Coast Guard for South China Sea
An artist's rendition of China's new drilling rig, to be deployed in 2016. Agility Group
China is accelerating the expansion of its offshore oil fleet—and adding coast guard vessels to protect it—as it ventures farther into the sea for energy resources, threatening more altercations with neighbors.
Chinese companies from the giant China National Offshore Oil Corp. to small services providers have ordered more ships and rigs for offshore exploration in the first half of this year than in any full year since 2010, with more on the way, according to data compiled by IHS Maritime.
In addition, China ordered a massive, 30,000-ton deep-water drilling rig last year that is designed to operate in the South China Sea, and has two more in the planning stage.
These new rigs will be as big as China's largest—the HYSY 981—whose deployment in waters also claimed by Hanoi prompted a two-month nautical standoff and deadly anti-China riots in Vietnam. The rig was moved from the disputed area in mid-July, but with no end to tensions, as both nations reasserted their rights to the territory.
Driving the push to build the fleet is China's huge demand for energy, and—particularly for Cnooc, 0883.HK -0.72% the country's primary offshore oil producer—a quest for new finds to replace stagnating production in maturing fields.
The growth will give China the ability to explore and plant its flag over broad claims that include nearly all of the South China Sea, where large areas remain untapped under deep waters, harsh conditions and territorial disputes.
The expansion of the fleet is part of national policy, in a region where Beijing's political and energy-security goals overlap, said Philip Andrews-Speed, an energy-security specialist at Singapore's Energy Studies Institute.
"I'm sure they are going to use these drilling rigs as a political statement as well as simple exploration," he said.
China's emerging strategy was on display when the massive HYSY 981 rig was moved into deep, contested waters off the Paracel islands. The rig was accompanied by dozens of ships, mainly tugs, support ships, fishing boats and coast-guard vessels, according to IHS Maritime analyst Gary Li.
Drilling in deep waters is in line with global trends in which more easily extractable reserves have been depleted and energy companies are being forced into remote, sometimes politically tricky regions. A major deep-water discovery could have the same transformational effect for China's energy security that the shale boom had on the U.S. energy sector.
Spearheading the effort is Cnooc Ltd. and its sister company China Oilfield ServicesLtd. 601808.SH -0.86% , or COSL, which owns and operates many of the vessels. Cnooc's domestic oil-and-gas output has changed little in the past four years, and the company said in 2009 that it would commit $30 billion to deep-water projects over 20 years.
A Cnooc spokeswoman declined to comment when asked if the new fleet could come into conflict with China's neighbors, and said the company has been following an exploration plan it announced this year. She referred further questions about new vessels to COSL.
COSL will provide an update on its fleet and orders when it reports its earnings in August, a company spokeswoman said, also declining to comment about potential territorial conflict. COSL, the world's largest state-run offshore-drilling company, has been accumulating deep-water drilling expertise in the North Sea, Gulf of Mexico and Indonesia.
Chinese orders for ships and rigs in the first half of this year total 126,300 tons, covering a range of vessels needed for large-scale offshore operations, including drilling platforms for shallow- and mid-water, ships that conduct seismic research in deep water and support vessels, according to IHS Maritime.
A parallel effort is taking place with China's coast guard, which was reorganized last year to include coastal police, fisheries and marine-enforcement agencies under one unified command. The fleet, which numbers more than 100 vessels, has around 40 ships on order and is expected to receive 15 this year, according to IHS.
The aim of the revamp is to boost maritime law enforcement, improve the protection of oceanic resources and better safeguard the country's maritime rights and interests, China's official Xinhua News Agency reported in March.
While the East China Sea, where China is locked in disputes with Japan, is also likely to see more exploration, the South China Sea is expected to draw most of the effort because of its potential for huge reserves.
The U.S. Energy Information Administration's high-end estimate puts the South China Sea's proved and probable reserves at 11 billion barrels of oil and 190 trillion cubic feet of natural gas. This compares to a low-end estimate of 48 billion barrels of undiscovered oil resources and around 740 trillion cubic feet of undiscovered natural gas in all the Asian-Pacific region, according to the U.S. Geological Survey.
Recent discoveries have indicated that the region may hold more gas than oil, and exploration in deep waters faces tremendous logistical and technological hurdles.
The new abilities should allow China to venture much farther into the South China Sea than before and surpass the reach of neighbors such as Vietnam and Philippines, which rely heavily on foreign expertise, according to Mr. Andrews-Speed.
COSL's new mega drilling rig, the HYSY 982, is expected to be completed by 2016 and is specifically designed to operate in the South China Sea, according to its designer, Norway-based Agility Projects, and its builder, Dalian Shipbuilding Industry Co. There, rigs must be able to drill at depths of 5,000 feet or more and withstand rough seas and typhoons, they said.
"This is only the start of a major, concerted Chinese drive towards harnessing the natural resources in the South China Sea," Mr. Li said.
An artist's rendition of China's new drilling rig, to be deployed in 2016. Agility Group
China is accelerating the expansion of its offshore oil fleet—and adding coast guard vessels to protect it—as it ventures farther into the sea for energy resources, threatening more altercations with neighbors.
Chinese companies from the giant China National Offshore Oil Corp. to small services providers have ordered more ships and rigs for offshore exploration in the first half of this year than in any full year since 2010, with more on the way, according to data compiled by IHS Maritime.
In addition, China ordered a massive, 30,000-ton deep-water drilling rig last year that is designed to operate in the South China Sea, and has two more in the planning stage.
These new rigs will be as big as China's largest—the HYSY 981—whose deployment in waters also claimed by Hanoi prompted a two-month nautical standoff and deadly anti-China riots in Vietnam. The rig was moved from the disputed area in mid-July, but with no end to tensions, as both nations reasserted their rights to the territory.
Driving the push to build the fleet is China's huge demand for energy, and—particularly for Cnooc, 0883.HK -0.72% the country's primary offshore oil producer—a quest for new finds to replace stagnating production in maturing fields.
The growth will give China the ability to explore and plant its flag over broad claims that include nearly all of the South China Sea, where large areas remain untapped under deep waters, harsh conditions and territorial disputes.
The expansion of the fleet is part of national policy, in a region where Beijing's political and energy-security goals overlap, said Philip Andrews-Speed, an energy-security specialist at Singapore's Energy Studies Institute.
"I'm sure they are going to use these drilling rigs as a political statement as well as simple exploration," he said.
China's emerging strategy was on display when the massive HYSY 981 rig was moved into deep, contested waters off the Paracel islands. The rig was accompanied by dozens of ships, mainly tugs, support ships, fishing boats and coast-guard vessels, according to IHS Maritime analyst Gary Li.
Drilling in deep waters is in line with global trends in which more easily extractable reserves have been depleted and energy companies are being forced into remote, sometimes politically tricky regions. A major deep-water discovery could have the same transformational effect for China's energy security that the shale boom had on the U.S. energy sector.
Spearheading the effort is Cnooc Ltd. and its sister company China Oilfield ServicesLtd. 601808.SH -0.86% , or COSL, which owns and operates many of the vessels. Cnooc's domestic oil-and-gas output has changed little in the past four years, and the company said in 2009 that it would commit $30 billion to deep-water projects over 20 years.
A Cnooc spokeswoman declined to comment when asked if the new fleet could come into conflict with China's neighbors, and said the company has been following an exploration plan it announced this year. She referred further questions about new vessels to COSL.
COSL will provide an update on its fleet and orders when it reports its earnings in August, a company spokeswoman said, also declining to comment about potential territorial conflict. COSL, the world's largest state-run offshore-drilling company, has been accumulating deep-water drilling expertise in the North Sea, Gulf of Mexico and Indonesia.
Chinese orders for ships and rigs in the first half of this year total 126,300 tons, covering a range of vessels needed for large-scale offshore operations, including drilling platforms for shallow- and mid-water, ships that conduct seismic research in deep water and support vessels, according to IHS Maritime.
A parallel effort is taking place with China's coast guard, which was reorganized last year to include coastal police, fisheries and marine-enforcement agencies under one unified command. The fleet, which numbers more than 100 vessels, has around 40 ships on order and is expected to receive 15 this year, according to IHS.
The aim of the revamp is to boost maritime law enforcement, improve the protection of oceanic resources and better safeguard the country's maritime rights and interests, China's official Xinhua News Agency reported in March.
While the East China Sea, where China is locked in disputes with Japan, is also likely to see more exploration, the South China Sea is expected to draw most of the effort because of its potential for huge reserves.
The U.S. Energy Information Administration's high-end estimate puts the South China Sea's proved and probable reserves at 11 billion barrels of oil and 190 trillion cubic feet of natural gas. This compares to a low-end estimate of 48 billion barrels of undiscovered oil resources and around 740 trillion cubic feet of undiscovered natural gas in all the Asian-Pacific region, according to the U.S. Geological Survey.
Recent discoveries have indicated that the region may hold more gas than oil, and exploration in deep waters faces tremendous logistical and technological hurdles.
The new abilities should allow China to venture much farther into the South China Sea than before and surpass the reach of neighbors such as Vietnam and Philippines, which rely heavily on foreign expertise, according to Mr. Andrews-Speed.
COSL's new mega drilling rig, the HYSY 982, is expected to be completed by 2016 and is specifically designed to operate in the South China Sea, according to its designer, Norway-based Agility Projects, and its builder, Dalian Shipbuilding Industry Co. There, rigs must be able to drill at depths of 5,000 feet or more and withstand rough seas and typhoons, they said.
"This is only the start of a major, concerted Chinese drive towards harnessing the natural resources in the South China Sea," Mr. Li said.
