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Braving New Waves Together: Offshore Bonanza


Celebrating 40 Years of ASMI
World-Class Industry
Premier Centre For Ship Repair And Conversion
Glowing Prospects For FPSO Conversion
Offshore Bonanza 
Specialist Builders
A Complete Maritime Community 
Developing Human Capital
Safety First
Leveraging On Technology 
Battle For Hearts And Minds




Offshore Bonanza


Undisputed Lead

Not a single barrel of oil has been discovered here but Singapore has established an undisputed lead in rig building. With their strong foundation in rig building honed by nearly four decades of working with leading players in the offshore industry, Singapore shipyards have garnered more rig building contracts than any other shipyard in the world.


Singapore was launched into rig building by Far East Levingston Shipbuilding when it delivered Singapore’s first jack-up rig, J W McLean, in 1969. By 1980, Singapore’s five rig builders then, had among them secured a total of 31 contracts, propelling it into the premier spot as the top jack-up rig builder in the world.


The rig builders were badly hit during the recession in the mid 1980s. With few orders, some rig building yards closed down while others diversified, scaled down or re-defined their roles to build, repair and convert other offshore structures. By the early 1990s, Singapore was once again in the lead for rig construction. It is a position it has retained ever since.


Over the years, Singapore shipyards have built up their capability with proprietary designs and engineering solutions to sustain its lead for years to come. Today, its rig building yards, namely Keppel O&M’s Keppel FELS and Sembcorp Marine’s subsidiaries, PPL Shipyard and Jurong Shipyard, have kept the flag flying with a continuous stream of jack-up and semi-submersible rig projects.


Impact of the Oil Cycle

Development of the industry has ebbed and flowed with the gyrations of the oil market. The first oil price crisis triggered by tension in the Middle East caused oil price to quadruple to over US$10 a barrel, while the second in the late 1970s pushed it above the US$30 mark. The steep increase by the Organisation of Petroleum Exporting Countries (OPEC) helped to jump-start the industry.


In a paper presented at the Institute of South-East Asian Studies (ISEAS) in 2006, Mr Choo recalled, “Within months of the 1973 oil crisis, a great drilling boom began. With high oil prices, there was a need to find oil outside OPEC. Vast amounts of capital were poured into the oil and gas industry, both the onshore and offshore sectors. From 1973 to 1983, the fleet of jack-up drilling rigs increased from just over 100 to nearly 400 rigs.”


But the price spike, which peaked at US$32 a barrel in 1982, sent the world economy into a tailspin. The reduced economic activity dampened the demand for oil, causing prices to collapse. With depressed prices over the next 20 years, there was little incentive for companies to invest in new rigs. Starved of new orders, 74 of the 82 rig builders worldwide closed. Among them were three of the five Singapore rig builders.


Having survived the worst, the remaining shipyards used the lull period to build up their in-house capability. As companies closed, they took on their leases, acquired their equipment and secured their designs, which they further enhanced through research and development.  


A New Dawn

The increased price of crude oil in the new millennium set the stage for entrepreneurial Norwegians. The ageing rig fleet, many of which were over 20 years old, presented them with an opportunity to take a calculated risk. The destruction caused by hurricanes Katrina and Rita in 2005, which tore through the Gulf of Mexico's offshore oil and gas fields, heightened the demand for new tonnage.


Current demand is for new-generation rigs to support companies in their search for elephants - major new fields with big reserves of oil and gas deposits - in deep waters. By 2015, it is estimated that deep-water drilling could account for 25% of offshore oil production as compared with just 9% in 2006.


With their proven track records, Keppel FELS, PPL Shipyard and Jurong Shipyard are the preferred yards. Together, they command over 70% of the jack-up rigs and 60% of the semi-submersible platforms on order. About 30% of the jack-ups and 16% of the semi-submersibles currently under construction in the world are constructed to Singapore-owned proprietary designs.


As Claus Hemmingsen, board member of the AP Moller Maersk of Maersk Group, told UK-based magazine Seatrade, “Yards in Singapore have reached a very high level of competence … I expect the rigs (built here) to outperform anything in the industry.”


Fears of any possible froth in the market have been taken care of by the US sub-prime mortgage crisis, which has cast a long shadow over the world economy. Said Mr Chia, “The credit crunch will put off energy speculators from competing with bona fide companies in ordering new rigs.”


The increasing orders present a different set of challenges to shipyards. Said Mr Choo, “The main constraint is trained manpower and supply chain – the shortage of critical materials, components and machinery. The challenge is how to manage. We are used to a famine environment, not a feast, much less a prolonged feast. The capacity has not expanded fast enough. In the past when we built two to three rigs a year that was a lot. Now Keppel O&M is doing over ten in Singapore.”


More Good Years

It is anybody’s guess just how long the good times will last, as the experience of the past cannot adequately serve as a guide to the future. Buttressed by strong demand from emerging new economies, oil prices have headed into uncharted territory. With supply constraints, any possible disruption in the supply chain as a result of strikes, sabotage or natural disaster, can trigger further price increases.


Even if prices were to fall from their current meteoric heights, it would still be viable for oil companies to operate. After factoring in all the costs, Mr Chia opined that the oil price at “US$80 a barrel is good and sustainable for any project, even deep-water ones”.


Given the buoyant conditions, the ageing rigs have continued to operate. Some are being put through life extension to change their accommodation and re-equip them for a further five to ten more years of operation. This has provided Singapore shipyards with an additional earning stream. Rig repair and refurbishment currently accounts for about a quarter of Singapore’s offshore revenues.


Unless there is a change in technology, which renders the current technology obsolete, Singapore rig builders can look forward to more good years. With his long association with the industry, Mr Chia can say with a measure of certainty: “This industry is not for a big technological jump, everything is very gradual.’’

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