OFFSHORE PLANT125.131.31.47/Solars7DMME/004/15Investment_Opportunities...08 OFFSHORE PLANT 09 Given...
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OFFSHORE PLANT INVESTMENT OPPORTUNITIES IN KOREA
Transcript of OFFSHORE PLANT125.131.31.47/Solars7DMME/004/15Investment_Opportunities...08 OFFSHORE PLANT 09 Given...
OFFSHORE PLANT
INVESTMENTOPPORTUNITIESIN KOREA
OFFSHORE PLANT
INVESTMENTOPPORTUNITIESIN KOREA
Contents
04 Overview of the offshore plant industry
Global and domestic market developments and outlook
Foreign direct investment
12 Korean offshore plant industry: Competitive standing and outlook
Geographical distribution of the offshore plant industry
Promising Korean market segments and regions for foreign investors
Outlook for market entry
18 Government policies and related regulations
Government policies for the offshore plant industry
22 Cost
Cost breakdown of the offshore plant industry
Human resource: Supply and demand
Profitability relative to cost
26 Success cases
Overview of successful foreign investment attraction
Global headquarters of General Electric’s shipbuilding and
offshore division (05 / 2013)
Investment incentives
Investment results
30 Related companies and associations
Related companies
Related associations
KOREA, Where Success Knows No Limits
0501 OVERVIEW OF THE OFFSHORE PLANT INDUSTRY
* Source: Korea Institute for Industrial Economics & Trade (2013)
Installation, appraisal, practices
Installation & commissioning Certification, testing, appraisal and practices
OVERVIEW OF THE OFFSHORE
PLANT INDUSTRY
The composition of offshore plant industry players offers insights into recent developments in the global offshore plant industry. Oil majors developing offshore energy resources lie at the top of the value chain, followed by shippers, shipbuilders, equipment manufacturers and engineering companies, which are closely interconnected in a market network.
Global offshore plant industry players by segment
Global and domestic market developments and outlook
Indirect demand side
Direct demand side
Shipbuilders
Indirect suppliers
Direct suppliers
Oil majors and offshore energy developers (oil exploration, etc.)
Europe
Korea
Asia
USA
USA
Asia
Other
Europe
Equipment
Design & engineering Steel makers
0706 OFFSHORE PLANT
Offshore plant operators are mostly oil majors. In terms of the drillship fleet size, the largest operator is Brazil’s national oil company Petrobras, which has been aggressively undertaking oil exploration and drilling projects off the coast of Brazil, followed by Shell, Pemex, ONGC and BP. •�Drilling equipment is mostly used in major offshore oil fields such as Brazil Offshore and in the
Mexican Gulf Coast, Persian Gulf, North Sea and West Africa.
Meanwhile, shippers that own offshore plants include Transocean, Bluewater, Maersk Drilling, SBM Offshore, Seadrill, Noble and ENSCO. U.S. and European shippers have a dominant market presence. •�Transocean has the highest number of offshore drilling equipment followed by Noble, ENSCO
and Seadrill.
Global drillship fleet by vessel owner (Unit: No. of vessels)
Transocean Ltd
Noble Drilling
ENSCO SeadrillLtd
KCADeutag
Nabors Offshore
Diamond Offshore
China Oilfield Services
Shelf Drilling
HerculesOffshore
MaerskDrilling
Rowan
180
160
140
120
100
80
60
40
20
0
Number of vessels owned
Number of orders issued
66
98
63
80
28
34
27
35
22
41
30
38
32
42
31
46
18
71
43
47
38
63
57
74
* Source: KIET analysis of data available at www.rigzone.com/data
•�The Monaco-based Dutch firm SBM Offshore has the largest FPSO fleet, with 33 vessels, followed by Japan’s MODEC (32) and BW Offshore (15).•�SBM Offshore has the highest number of floating, production, storage and offloading (FPSO)
vessels, recording annual sales revenue of USD 3.46 billion and employment of 9,660 as of 2013. The company’s main focus lies in FPSO design, including moorings and topsides.
Global FPSO fleet breakdown by vessel owner
Major company Country Under Construction In Operation Total
SBM Offshore Netherlands 4 29 33
MODEC Japan 4 28 32
PROSAFE Norway 0 10 10
BW Offshore Norway 2 13 15
MISC Malaysia 4 9 13
Blue Water Netherlands 0 6 6
SAIPEM Italy 0 2 2
Total 13 95 108
The offshore plant sector was on an upward trend due to high oil prices. In terms of the value of the total order backlogs, the drilling segment accounts for about 53% while the production segment accounts for about 19%. •�Given that the production and utility support vessel segments follow the drillship segment,
these markets are expected to expand. However, variables such as oil price fluctuation do exist.
Amount of order backlog: Offshore segment (Unit: %)
Mobile Offshore
Drilling Unit (MODU)
53Mobile Offshore
Production Units (MOPU)
19
Construction12
Supply8
AHTS, 3Survey, 2
USV, 1 Logistics, 1Rescue vessels, 1
01 OVERVIEW OF THE OFFSHORE PLANT INDUSTRY
* Source: Douglas-Westwood statistics
* Source: Clarkson (2014. 2)
Drillship demand is highly sensitive to oil prices. The number of drillship orders grew sharply in the 1970s during the oil crisis and recently stagnated following a boom after the mid-2000s. •�In particular, the deepwater floating drillship sector, where Korean companies have a market-
leading position, contracted since 2013 after a boom in the mid-2000s. China exceeded Korea in 2013 in terms of order volume thanks to a sharp increase in jackup rig orders.
Offshore floating rig orders (left) and order backlog by country (right)
Korea China Brazil Singapore other
100
80
60
40
20
0
57
80
2339
29
(Unit: No. of vessels)
1970 1980 1990 2000 2010
1979 - 1984 296 Delivered
Semisub Drillship Delivered units
Jackup Drill Barge Oil Price (Sm)
2008 - 2013280 Delivered
120
100
80
60
40
20
0
(Unit: No. of rigs ordered) (Unit: $/bbl)
0908 OFFSHORE PLANT
Given that FPSO follows drillship orders, the outlook for FPSO vessel demand is bright on continued oil price strength. However, the FPSO vessel market took a breather recently, as oil majors started to revisit their projects.
Outlook for FPSO vessel fleet (left) and order backlogs by major country (right)
Foreign direct investment in the offshore plant industry
Year of investment
Nationality of investor Company Segment
2002 Singapore GE Energy Korea Offshore process control equipment
2003 China Geum Jung ENG Offshore structure
2005 UK CATHELCO Korea Offshore structure anticorrosive equipment
2007 Spain ACCIONA Energy Korea Engineering service
2009 Germany IGUS Korea Bearing, cable, energy chain and pipe production
2010 Singapore E-Marine Logix Offshore information system development
2010 Canada ALL-SEA Asia Offshore technology service
2012 Australia PNL Offshore plant pipe
2012 Germany Schulz Korea Offshore equipment sales
2013 Netherlands Heinen & Hopman Korea Offshore structure air conditioning system
2013 Austria Palfinger Dreggen Korea Offshore crane and structure design and production
2013 Germany SIEMENS Energy Solutions Engineering service
2014 France PARIFEX Oil & Gas Engineering Offshore plant facility design, verification, management and equipment sales
2014 Netherlands Kyungnam Energy Gas production and pipe supply
2014 UK MRC Global Korea Energy-related parts such as pipes, valves and fittings
2014 Norway Kolon Fjords Processing Offshore plant equipment design and manufacturing
* Source: Ministry of Trade, Industry & Energy
In particular, Kolon Fjords Processing, a joint venture established in July 2014 between Kolon Group and Aker Solutions, will design and manufacture offshore plant equipment used for the highly advanced dehydration process, separating water from oil and natural gas at the drilling stage. •�It is another example of where Korea attracted foreign investment into less-developed areas.
Aker Solutions is a global leader in the dehydration plant sector, where Korean companies have had to rely on foreign vendors due to a lack of technologies.
Industry value chain (global value chain type and necessity of investment)The global value chain of the offshore plant segment encompasses feasibility studies on target sites, exploration, drilling and appraisal, designing based on key variables and environmental conditions, offshore platform construction, transport and installation and commissioning. •�At the feasibility study and preliminary exploration stage, marine geophysical studies and the
exploration of physical conditions (anticlinal structures) are conducted. The key vessels include geophysical survey vessels, which generate artificial seismic waves for exploration.- Countries that actively explore and develop offshore energy resources have oil or gas blocks within their territorial
waters. These include advanced countries as well as Southeast Asian countries.- Countries with offshore oil fields have state-run oil monopolies to serve national interest. Accordingly, it is difficult
for Korea, which lacks economically viable oil fields in its territorial waters, to pursue energy development projects overseas.
* Source: Clarkson
•�By FPSO order backlog, Korea topped the list with 25 orders in 2014 and had an almost dominant position in the mid- to large-size segment.
Investor overview Foreign investment in the Korean offshore plant business jumped after 2005, when the commercial vessel market stagnated, and the offshore plant market started to take off thanks to high oil prices.•�Korea started in earnest to attract foreign investment in the mid-2000s, when Korea’s three
major shipbuilders-Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering-started to emerge as global leaders in the mid- to large-size offshore plant market. In particular, foreign investments were concentrated in the engineering and equipment segments, where Korean companies had a weak presence.
Foreign direct investment
250
200
150
100
50
01990 2000 20101995 2005 2015e
Idle unitsProducing FleetDemand Low CaseDemand Base CaseDemand High Case
(Unit: No. of vessels)
01 OVERVIEW OF THE OFFSHORE PLANT INDUSTRY
Korea China Brazil Singapore
30
20
10
0
25
118
59
Other
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•�At the wildcat and appraisal drilling stage, the first well is drilled in search of a new oil reservoir. If the wildcat drilling proves to be successful, more wells are drilled for economic feasibility testing and then appraisal drilling is carried out in order to make investment decisions. Key vessels and equipment used at this stage include drill ships, drill rigs, AHTS and standby vessels.- The most competitive players in this segment are Europe and the United States, who have knowhow and superior
technologies in energy development and production. Energy-rich countries have a market-leading position. - In the United States and Europe, energy-related businesses are well-developed and diversified, and thus energy
developers as well as drilling companies own their drillships. In other countries such as China, Brazil, Mexico and India, state-run oil companies own drillships to develop national energy resources.
•�In the design stage, production structures are designed to meet the environmental conditions of oil reserves. The design stage includes conceptual design, front end engineering design (FEED), basic design, detail design, production design and support engineering, which is required for load-out, transport and installation. - In particular, production design creates blueprints, which enable production and installation according to the
actual conditions of production or installation sites. Major Korean shipbuilders have the largest competitive advantage in production design thanks to their extensive track record.
Value chain of the offshore plant market
Feasibility study & preliminary exploration
Drilling and appraisal
DesignConstruction & fabrication
TransportDesign & commissioning
O&M
* Source: Ministry of Knowledge Economy, Competitiveness Analysis and Long- and Short-term Development Strategy for Offshore Plant Industry (2013)
•�In the construction and fabrication stage, offshore vessels and plants such as platform, FPSO, TLP, SPAR and subsea production facilities are fabricated as designed.
Offshore plant fabrication by major country
Country Details
Korea
•Semi-submersible drillship: Korea’s three major shipbuilders have a track record in semi-submersible drillships. •�Drillship → Samsung Heavy Industries has won the largest number of orders and a relatively stronger
construction capacity. •�FPSO → Korea’s three major companies have a track record in building FPSOs from the mid-to-large and super-
large segment. •�LNG-FPSO → Samsung Heavy Industries is building LNG-FPSO for Shell, and Daewoo Shipbuilding & Marine
Engineering is building one for Petronas.•�LNG-FSRU → Most orders go to Hyundai, Samsung, Daewoo and STX.
China
•�COSCO Nantong received one CFPU order from KNOC and two drillship orders from S-Drill (USA). Dalian Shipbuilding Industry Company (DSIC) received one FPSO order from CNOOC. The China State Shipbuilding Corporation (CSSC)-affiliated Shanghai Shipyard received four drillship orders from Reignwood Group. China led the global jackup market in 2013.
•�With strong government support, state-run oil companies have aggressively entered the global natural resource development market, especially in Africa and South America through direct investment or M&A.
•�When Chinese companies such as CNOOC conduct overseas oil development projects, they are required to construct and procure equipment such as FPSO and drilling rigs from China (China Shipbuilding Industry Corporation). It is mandatory that they use equipment made in China.
Japan
•�The government provides policy support for the advancement of Mitsui and Mitsubishi into the offshore market. Mitsubishi has emerged as the third-largest LNG producer in Southeast Asia and Australia. Mitsui has a profitable subsidiary-MODEC-which specializes in offshore personnel management and FPSO-leasing business.
•�Key companies include Mitsui, Mitsubishi, E&S, IHI, Tokyo Gas and Osaka Gas.
Singapore
•�In the global FPSO market, Singapore accounts for 70% of the upgrade and conversion segment and 20% of the repair segment. There are more than 1,000 global equipment and engineering service companies in Singapore. Singapore used to have a 70% share of the global jackup market before being overtaken by China in 2013.
•�Key companies include Keppel (specializes in jackup, semi-submersible Ensco 8501, AHTS, PV Drilling I, II, III) and Jurong (jackup, FPSO conversion, semi-submersible).
- Korean companies have a competitive edge in offshore plant building and fabrication, having developed knowhow and technologies through various projects. Key offshore plant market segments include floating semi-submersible, drill-ship, FPSO, LNG-FPSO and LNG-FSRU.
- Singapore is a global leader in the offshore plant upgrade and conversion market. China has fast emerged in the fixed offshore plant and jackup markets despite competition with many countries.
•��At the transportation, installation and commissioning stage, self-propelled semi-submergible ships, large barges or tug boats are used for transportation. Offshore plants are assembled onshore as much as possible to allow quick hook-up and commissioning offshore. - Offshore plants are transported for on-site assembly, after pre-assembly works are completed onshore to the
largest extent possible. Dockwise, a Dutch company, has a leading position in the transportation segment. - In the installation segment, the unit price per project is relatively low. If the installation market is dominated by
a handful of companies, the entire project schedule depends on the availability of installation vessels. Market leaders include McDermott (USA) and Saipem (Italy).
•�At the operation and maintenance stage, oil majors and oil-producing countries directly operate and maintain offshore vessels. Some countries like France have global energy companies (Total), even though they do not have oil fields.
01 OVERVIEW OF THE OFFSHORE PLANT INDUSTRY
1302 KOREAN OFFSHORE PLANT INDUSTRY: COMPETITIVE STANDING AND OUTLOOK
Korea’s offshore plant clusters are concentrated in South Gyeongsang Province. These clusters coincide with areas where major shipbuilders build large offshore plants for global customers. •�Offshore plants are mostly constructed in Ulsan (Hyundai Heavy Industries) and Geoje City in
South Gyeongsang Province (Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering). Related equipment production and engineering is conducted in Seoul, Busan and Ulsan.
Korean offshore plant industry and infrastructure
Offshore Plant Comprehensive Testing Center (Hadong)
Offshore Plant Equipment Testing & Appraisal Center (Geoje)
Offshore Plant Design Expert Development Center (Busan, Jung-gu)
Offshore Plant Equipment R&D Center (Busan, Gangseo-gu)
Offshore Plant Industry Support Center (Geoje)
Industry and Infrastructure by Region•�Ulsan
Offshore plant construction / OSV
•�BusanEquipment / R&D center / HR development
•�South GyeongsangConstruction / testing & appraisal / OSV
•South Jeolla OSV
•Daejeon Special research zone / basin
•SeoulEngineering
Seoul
Daejeon
Mokpo
Ulsan
Busan
GeojeGwangyang bay area
FEZ
Engineering
Daebul National Industrial Complex
Daedeok Research Complex
Noksan National Industrial Complex
Hyundai Heavy Industries
Daewoo Shipbuilding & Marine Engineering
Samsung Heavy Industries
STX
Galsaman shipbuilding General Industrial Complex
Obi General Industrial ComplexOkpo National Industrial Complex
* Source: Maritime Korea (2012) and the Busan Ilbo (2013)
•�Hyundai Heavy Industries, headquartered in Ulsan, reported order receipts worth USD 7.13 billion, including semi-submersible rig (USD 630 million) and fixed and floating offshore plant orders (USD 6.5 billion).
Hyundai Heavy Industries’ key offshore plant projects
Goliat FPSO (ENI) Q204 FPSO (BP) Rosebank FPSO (Chevron)
Geographical distribution of the offshore plant industry
KOREAN OFFSHORE PLANT INDUSTRY: COMPETITIVE STANDING AND OUTLOOK
1514 02 KOREAN OFFSHORE PLANT INDUSTRY: COMPETITIVE STANDING AND OUTLOOK OFFSHORE PLANT
•�Samsung Heavy Industries has a shipyard in Geoje City, South Gyeongsang Province. The company has fast expanded its offshore plant business, which recorded new orders of USD 8.65 billion in 2013 and accounted for 65% of the company’s total orders. The backlog of offshore plant orders amounted to USD 26.3 billion, or 71% of the total order backlog.
Samsung Heavy Industries’ key offshore plant projects
LNG FPSO (Shell) Arctic drillship (Stena) Bonga FPSO (Shell)
•�Daewoo Shipbuilding & Marine Engineering has a shipyard in Geoje City. Its offshore plant order receipts sharply increased to USD 8.1 billion, or 60% of the company’s total order receipts in 2013. At the end of September, 2014, offshore plant order backlogs amounted to USD 27.4 billion, or 59%, of the total order backlog.
Daewoo Shipbuilding & Marine Engineering’s major offshore plant projects
LNG FPSO (Petronas) LNG-FSRU (MOL) Drill-ship (Aker Drilling)
As in the case with the geographical distribution of offshore plant builders, offshore-plant related research, testing and demonstration facilities are concentrated in South Gyeongsang and South Jeolla provinces, which creates easy access to related infrastructure. •�In particular, the ocean engineering basin is scheduled for start-up in 2016 in the western part
of Busan. In the Galsa Bay Shipbuilding Industrial Park in Hadong, a demonstration bed will be established to test the performance of deepwater energy production facilities. The Korea Marine Equipment Research Institute, which conducts tests on maritime equipment, is also located in Busan.- The ocean engineering basin will test the performance of deepwater offshore plant designs. It is the world’s largest
of its kind and can simulate actual environmental conditions such as waves, wind and tide, enabling related companies and research institutes to develop various deepwater facility technologies and test performances.
Ocean Engineering Basin in Busan
Major Korean companies are among the most competitive players in the construction and fabrication segment but lag behind in the feasibility study, engineering, installation, commissioning and maintenance segments. •�By country, the United States, France and UK are most competitive across the supply chain of
offshore plants, except for the construction and fabrication segments. - While Korea ranked in the top-tier in terms of competiveness in construction and fabrication, the country ranked
in the mid-tier in most parameters and the bottom-tier in feasibility studies and preliminary exploration.
Wave Generation System Wind Generation System
1716 02 KOREAN OFFSHORE PLANT INDUSTRY: COMPETITIVE STANDING AND OUTLOOK OFFSHORE PLANT
National competitiveness comparison in the supply chain of the offshore plant industry
Feasibility studies & preliminary exploration
Drilling & appraisal Design Construction &
fabrication Transportation Installation & commissioning
Operation & maintenance
Korea Bottom Mid Mid Top Mid Mid / Top Mid
USA Top Top Top Mid Top Top Top
Japan Mid Mid Top Mid Mid Top Mid
France Top Top Top Mid Top Top Top
UK Top Top Top Mid Top Top Top
Italy Top Top Mid Mid Mid Mid Mid
Netherlands Mid Mid Mid Mid Top Mid Mid
Switzerland Mid Mid Mid Bottom Mid Mid Mid
China Bottom Bottom Mid Mid Mid Mid Mid
Brazil Mid Mid Mid Mid Mid Mid Mid
India Mid Mid Mid Bottom Bottom Mid Mid
Singapore Bottom Bottom Mid Mid Mid Mid Mid
* Source: Ministry of Knowledge Economy, Competitive Analysis and Mid- and Long-term Development Plan for Offshore Plant Industry (2011)
The Korean offshore plant equipment and engineering segments look promising for foreign investors, as the business expansion of Korea’s big three players − Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering − has been driving demand growth. •�Korea’s offshore plant production has increased every year, but only about 20% of topside-
plant equipment is domestically procured.
Share of domestically procured offshore plant equipment by type
Type Share of domestic equipment Note
Machinery equipment 15 - 20%
•Most machinery equipment is imported. •�Simple fabrication and equipment such as vessels and heat exchangers are
domestically procured.
Piping materials 15 - 20%
•�Bulk materials and general-purpose valves are domestically procured. •�High-pressure and special-material valves are imported. •�Instrumentation equipment such as control valves and shutdown valves are
entirely imported.
Electric equipment 35 - 45%•�Most electric panels are imported due to UL and certificate issues. •�Electric motors are mostly imported. •�Bulk materials such as cables and trays are domestically procured.
Instrumentation equipment 10 - 15%
•�Most instrumentation equipment is imported.•�Only bulk materials such as tubing and tube fitting are domestically procured.
Safety equipment Around 5% •�Most safety equipment is imported.
•�A company’s track record is essential for penetrating the off-shore market. However, there are limitations for small-size Korean equipment makers to build a track-record while pursuing in-house development. •�Various types of offshore equipment have been imported amid an increase in offshore plant
construction. If related companies seek to produce equipment through investments in Korea, chances are high that they will secure significant competitiveness compared to imported equipment.
The outlook is bright for overseas engineering companies specializing in offshore plant equipment, FEED and basic design areas where Korea is not self-sufficient. •�Though there are efforts to domestically procure offshore plant equipment, it takes a long time
to develop technologies in-house and deliver applications. As Korea’s top three shipbuilders can build offshore plants based on detail design, offshore FEED and basic design usually go to foreign companies through a consortium. - Investments in Korea will help relocate production and design sites to Korea and integrate with the Korean
offshore plant supply-chain, which is expected to enable project centralization, create synergy effects and achieve significant performance accordingly.
Reasons to domestically produce offshore plant equipment
•Need for frequent communication with vendors (Time difference and regional issues occur.)•Difficulties in delivery management •Need for frequent meetings to address technical issues •Difficulties participating in various inspection and testing •Problems in equipment shipment (transport time, dissembled transport, etc.)•Shortage of field constructability and risks of mismatch upon yard construction •Difficulties in addressing problems identified during commissioning (extra time requirement)•Difficulties in mobilizing field service engineers
Outlook for market entry
Promising Korean market segments and regions for foreign investors
1918 03 GOVERNMENT POLICIES AND RELATED REGULATIONS OFFSHORE PLANT
Government policies for the offshore plant industry
A variety of policy support is provided to ensure that foreign companies investing in the less-developed segments of the Korean offshore plant market (equipment, engineering, etc.) can deliver tangible investment results. •�The Korean government has continuously improved the country’s investment environment
by promoting concrete partnerships such as joint research between foreign investors and Korean companies and joint advancement to overseas markets, while striving to attract foreign companies to free economic zones and special R&D zones. - In 2012, the Ministry of Trade, Industry & Energy (then the Ministry of Knowledge Economy) established
“Development Plans for Offshore Plant Industry” and launched 26 accompanying tasks to systematically promote the offshore plant industry as a future growth industry.
- Global offshore plant manufacturers, related equipment manufacturers and the government will lead the effort to establish research infrastructure for the creation of a world-class offshore plant ecosystem.
•�In particular, the Korean government has set a policy agenda for increasing the domestic production of offshore plant equipment and improving competitiveness. Accordingly, the government has taken accompanying measures to develop core technologies, promote the domestic production of offshore plant equipment and support overseas market expansion, while providing a variety of support and pursuing institutional improvements to attract foreign investment.- The Korean government established a “Technology Roadmap for Offshore Plant Industry” for the development of
core offshore plant technologies. Since 2014, the government has aggressively pursued the gradual development of 100 core technologies in four segments identified by the roadmap.
Government-driven development of core offshore plant technologies
100 core technologies Drilling (28 technologies), FPSO (21), FLNG (26) and Subsea / OSV (25)
Technology development projects
•�(Deepwater) Development of environment-friendly offshore plant technology for deepwater resource production (July 2012 - June 2018, KRW 243 billion (USD 219 million )*)
•�(Equipment) 15 tasks including drillship flare system development (June 2012 - April 2015, KRW 30.4 billion), two tasks including the development of a high-pressure probe used for subsea pipeline monitoring (April 2013 - March 2014, KRW 2 billion)
•�(Process technology) Opportunity crudes production & processing technologies and organic acid / calcium removing technology (June 2013 - May 2018, KRW 3.8 billion)
•�(IT conversion) Development of predictive maintenance system to deliver integrated offshore plant operation, maintenance and repair services (May 2013 - April 2017, KRW 13.9 billion)
- Regional research facilities and collaboration between research institutions will be enhanced to lay the
groundwork for offshore plant research.
* Currency conversion based on February, 23, 2015 rate.
GOVERNMENT POLICIES AND
RELATED REGULATIONS
2120 03 GOVERNMENT POLICIES AND RELATED REGULATIONS OFFSHORE PLANT
Efforts to enhance regional offshore plant research facilities
Region Enhancement of offshore plant research facilities
Busan / Geoje
•�Ocean Engineering Basin (Busan, 2013~)•�Offshore plant R&D special zone (Busan, 2012~)•�Equipment R&D center (Busan, 2012~)•�Equipment Test & Certification Center (Geoje, 2012~)•�Offshore Plant Industry Support Center (Geoje, 2013~, Ministry of Oceans and Fisheries)•�Shipbuilding and Maritime Equipment Performance Upgrade Support (Busan and neighboring areas)
Hadong, South Gyeongsang Province
•Explosives and Fire Testing Center (Hadong, 2011~)•�Establishment of Demonstration Bed for Deepwater Energy Production Facilities (Southwest Gyeongsang
Province)
Mokpo / Gunsan•�Shipbuilding and offshore plant industry conversion district (Mokpo, 2012~)•�Green Vessel Testing & Certification Center (Gunsan, 2013~, Ministry of Oceans and Fisheries) •�Establishment of offshore plant cable testing & research center (Southwest region)
•�The government seeks to attract investments from leading global companies in areas such as offshore plant equipment and engineering, where it takes a long time to develop technologies domestically, and to build partnerships for joint advancement into global markets. - The central government, together with regional authorities, makes aggressive efforts to attract research institutes,
specialized equipment manufacturers and engineering companies to free economic zones and special R&D districts. In particular, major international industry fairs are considered an opportunity to discuss investment potential with major global equipment and engineering companies.
- Strategic cooperation between global leading investment companies and domestic companies can be strengthened through partnerships. The government provides policy support for joint R&D and joint advancement into the global market between foreign investors and domestic companies (2014 and onward).
- Continuous institutional improvements will be made to attract foreign investment. Policy support has been expanded for the attraction of major foreign institutions and companies in free economic zones (August 2013, revised guideline for state-subsidized projects to support the attraction of foreign institutions).
•�A number of universities are designated as universities specializing in the offshore plant segment, which will develop a skilled workforce in the offshore plant segment and promote academy-industry cooperation. These universities will serve as a channel for exchange with global companies. - Seoul National University, Inha University and Korea Maritime and Ocean University were named universities
specializing in offshore plants in April of 2013. The government plans to gradually increase the number of universities specializing in offshore plants from three in 2013 to six in 2020 and to provide support for the enhancement of research and education in engineering, especially FEED, project management (PMC) and practical design.
- POSTECH established the Graduate School of Engineering Mastership in September of 2012. The number of universities specializing in engineering will be gradually increased, from one in 2013 to 10 in 2020. The establishment of an engineering and development research center is underway to enhance engineering education at universities (Supporting curriculum design, industry-academy cooperation and overseas study).
- Sophisticated design capabilities are enhanced through exchanges, cooperation and networking between domestic and foreign offshore plant companies. For example, the UK’s JEE and the Korea Offshore & Shipbuilding Association (KOSHIPA) signed an MOU on November 5, 2013. Discussions are underway with the United States’ Campbell for bilateral cooperation.
Foreign investors are entitled to tax relief on corporate income and dividend income on stocks and equity stakes earned from industry-related service and high-tech businesses, which are eligible for tax benefits and contribute to enhancing the global competitiveness of the Korean industries. •�Foreign investors are entitled to lower acquisition and property taxes for operating assets related
to areas such as offshore plant engineering and equipment businesses, which are subject to tax cuts. - Tariffs, individual consumption tax and value added tax are exempted for certain capital goods that are reported
as necessary for the business by foreign-invested projects that are entitled to tax cuts.
•�In particular, the Korean government recently decided to overhaul the related system and offer greater tax benefits in order to encourage global companies to establish their headquarters in Korea. - Foreign employees working at headquarters remain eligible for a special income tax relief. Currently, foreign
employees are subject to a flat income tax rate of 17%, regardless of their income (Applicable to foreign employees working at headquarters from 2015).
- In the case of internal transactions between foreign-invested companies in Korea and their overseas subsidiaries, the same items are subject to different tax rates. However, the taxation system will be overhauled to apply a proper level of tax to international transactions.
- The transfer pricing calculation of intangible assets has been streamlined, and the D8 visa for foreign employees working at headquarters can be extended up to five years.
•�The Korean government also focuses on promoting offshore R&D centers. Currently, foreign technicians are entitled to a 50% cut in income tax for the first two years (The tax benefit has been extended to 2018). - The government has expanded its lease subsidy for foreign investors to include buildings as well as plant sites. The
Ministry of Trade, Industry & Energy provides full support when foreign-invested R&D centers seek partnerships with universities in Korea.
•�In addition, the Korean government takes job-creation effects into consideration when estimating the tax cut limit for foreign-invested companies. The amount of the lease payment can be reduced for foreign companies that have contributed significantly to creating jobs in Korea.
2322 04 COSTOFFSHORE PLANT
Cost breakdown of the offshore plant industry
COST
The cost of an average offshore plant breaks down to materials (56.6%), labor expenses and outsourced processing (26.8%) and expenses (16.5%), though there are differences by product.•�In terms of labor force, the share of in-house technical staff has declined, but the share of
subcontracting has increased. Accordingly, the share of labor expenses has gradually declined, but the share of outsourced processing has significantly increased.
Cost breakdown of offshore plant industry
Item Share (%)
Materials 56.62
Labor expenses 8.45
Expenses
Processing outsourcing 18.4
Depreciation 1.8
Recurrent R&D expenses 0.07
Other 14.63
Total 100.0
•�Material costs accounted for the largest share of offshore plant costs. By item, steel products account for about 4% of the total materials costs, equipment and devices about 20 - 30%, pipes 3 - 11% and electrical materials 2 - 4%. - However, the material cost structure varies depending on the type of offshore plants. For example, pipes account
for a larger share of material costs for FPSOs (floating production storage and offloading vessels) than for drillships. - Expenses regarding transportation, post-delivery adjustment and labor can be reduced when foreign-invested
companies produce equipment domestically for Korean companies.
Key offshore plant materials: Cost breakdown
Item Steel Engine Device /equipment Pipe Chamber
materialsElectrical
parts Outfitting Other Share
FPSO 4.4 0.5 33.7 11.2 0.5 2.0 1.7 2.9 56.9
Semi-Rig 4.2 3.8 15.5 3.2 0.9 3.8 2.4 2.0 35.8
Drillship 3.9 2.0 25.0 2.8 0.7 2.6 1.3 5.4 43.7
2524 04 COSTOFFSHORE PLANT
Skilled labor supply in the offshore plant and shipbuilding segments (2013)
Item No. of graduates (A)
No. of graduates employed (B) % (B/A)
4-year program (19)
Undergraduate school 715 422 59.0
Graduate school 122 79 64.8
Total 837 501 59.9
Junior college (17) 936 640 68.4
Total 1,773 1,141 64.4
* Source: Korea Offshore & Shipbuilding Association
- Meanwhile, there was a constant shortage of skilled labor during the market boom. The shortage eased during a market contraction but widened again.
Change in skilled labor in the offshore plant and shipbuilding industry (Unit: People)
1990
Subcontracted skilled labor
In-house skilled labor
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
120,000
100,000
80,000
60,000
40,000
20,000
0
* Source: Korea Offshore & Shipbuilding Association
The number of people employed in the offshore plant and shipbuilding industry slightly declined after the global financial crisis in 2008 but recovered to 168,048 as of 2013, marking a 3.1-fold increase from 2000 thanks to a continued boom in the offshore plant market.
Number of people employed in the Korean offshore plant and shipbuilding industry (Unit: People)
1990
38,859
136,769168,048
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
* Source: Korea Offshore & Shipbuilding Association
•�Demand for skilled labor remained stagnant until 2005 but recovered quickly afterwards thanks to an increase in offshore plant orders and product convergence. Demand has recently seen moderate growth.
Number of skilled laborers in the Korean offshore plant and shipbuilding industry (Unit: People)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
25,000
20,000
15,000
10,000
5,000
0
* Source: Korea Offshore & Shipbuilding Association* Note: Based on shipbuilding and offshore (excluding others)
•�In terms of the supply of skilled labor, the number of university departments related to shipbuilding and ocean engineering has jumped nationwide to 36 compared to 11 in 2005 driven by a market boom. - Along with an increase in the number of related university departments, the numbers of freshmen and graduates
stood at 2,807 and 1,773, respectively, as of 2013. As students started to graduate from the newly established departments, the number of graduates has significantly increased.
In terms of the profitability of the offshore plant industry, the operating margin has dropped to a 3% level due to a decline in order prices and an additional building cost burden.
Korean offshore plant industry: Change in operating margin
2007
4.3%
5.5%
8.4% 8.4%
3.6% 3.0%
2008 2009 2010 2011 2012 2013
10%
8%
6%
4%
2%
0%
9.3%
* Source: Korea Offshore & Shipbuilding Association
Human resource: Supply and demand
Profitability relative to cost
(Unit: People, %)
2726 FINANCE 05 SUCCESS CASESOFFSHORE PLANT
SUCCESS CASES
As it has not been long since the offshore plant industry has been gaining growth momentum in Korea, the industry has only recently started to attract foreign investment.•�Despite successful efforts to attract foreign investment in Korea, the industry is in its early
stage and thus it is premature to determine whether the industry can continue to generate desirable results in the future.
GE’s investment is a good example of Korea attracting investments through efforts to create a favorable ecosystem for the offshore plant industry and to improve investment conditions. Korea attracted investments from General Electric (GE), which established the global headquarters of its shipbuilding and offshore division in Busan, in May of 2013 and opened an education and training center in October of 2013.
Investor / country: GE (USA)•�Investment destination / company name (investment area): Busan, Korea / GE Korea (global
headquarters for offshore and marine businesses) •Type of investment: Stand-alone •Date of report / investment scale: May 2013 / USD 2 million
Overview of successful foreign investment attraction
Global headquarters of General Electric’s shipbuilding and offshore division (05 / 2013)
2928 OFFSHORE PLANT
•�GE established its Korean subsidiary, GE Korea, in 1976 and has undertaken various projects in areas such as healthcare, engineering procurement construction (EPC), airline and shipbuilding and offshore. The company’s total investments to date have exceeded USD 3 billion. - The company reported annual sales of USD 1.8 billion, USD 1.44 billion of which comes from the manufacturing
segment. The company employees about 1,400 people and creates more than 200 jobs a year. - In the manufacturing division, ultrasound devices are manufactured in Sungnam, Gyeonggi Province, sensors in
Pyeongtaek, chemicals in Iksan and valves in Ulsan. Its R&D centers are divided into appliances, advanced sensors and control systems in Pangyo and a healthcare IT center is located in Songdo, Incheon.
- The offshore engineering business division at GE headquarters is engaged in operational businesses related to its various offshore support vessels (OSVs) such as PSV, AHT / AHTS and CSV, along with other businesses such as ocean energy production solutions, shipbuilding design and project operation.
In establishing the global headquarters of its shipbuilding and offshore division in Korea, GE benefits from greater tax relief, as its investment meets government qualifications as the headquarters of a global company. •�Foreign employees working at the global headquarters of GE’s shipbuilding and offshore
division remain entitled to a special income tax rate.•�Taxation issues are expected to be improved in line with the new system, and the D8 visa
(foreign investment visa) can be extended up to five years for foreign employees working at headquarters.
GE established the global headquarters of its shipbuilding and offshore division and the Power Conversion Training Center in Busan and has been developing a talent pool of experts. The company is pursuing related businesses. •�The headquarters opened in October of 2013. About 10 experts and a number of related
engineers work full-time to provide services to its shipyard customers. •�The GE Power Conversion Training Center, established in October of 2013, is equipped with
drillships and LNG carrier simulators, and specialized instructors and engineers, including a French instructor, hold trainings for shipyard employees.
GE Power Conversion Training Center
•Location of training site and scale: Busan, 660 m2 •Training topic: Equipment produced by GE Power Conversion •�Instructor and program: 2 instructors (incl. a French instructor), minimum 5 people per course
every year / total of 50 courses expected to be provided. •Training device: Drillships and LNG carrier simulator (KRW 1 billion investment)
Investment incentives
Investment results
05 SUCCESS CASES
3130 OFFSHORE PLANT 06 RELATED COMPANIES AND ASSOCIATIONS
Related companies
Hyundai Heavy Industries
Hyundai Heavy Industries is the world’s largest shipbuilder and has an order backlog of 152 vessels, or 18,860,000 dead weight tons, as of August, 2014 (including Gunsan Shipyard). The company has been conducting various offshore plant projects such as drillships, FPSOs and FPUs.
•�Among offshore products, drillships are constructed by the shipbuilding business division and other offshore plant products are constructed by the offshore and engineering business division. Drillships and semi-submersible vessels accounted for 20% of the order backlogs as of August 2014, and the sales portion of drillships stood at 39% in 2013.
Breakdown of Hyundai Heavy Industries’ vessel sales (left) and orders (right)
* Source: Hyundai Heavy Industries IR (2014. 9)* Note: Sales breakdown at the end of 2013, order backlogs as of August 2014
•�Fixed and floating production facilities accounted for 79% of offshore plant businesses.
Breakdown of Hyundai Heavy Industries’ offshore & engineering sales (left) Sales and orders (right )
* Total order backlog as of end-August, 2015: 155 vessels (USD20.4 bn) on a delivery basis
Others 1%
PCTC 3%Special vessel 3% Semi-submersible rig 2%
Bulk carrier 1%P/C 1%
Drillship37%
Container carrier23%
LNG carrier18%
LPG carrier7%
Tanker 4%Container
carrier17%
LNG carrier22%
Tanker11%
LPG carrier15%
Drillship14%
Special vessel
9%
Semi-submersible -rig 6%
Bulk carrier 4%
Others 2%
* Source: Hyundai Heavy Industries (September, 2014)
Fixed / floating platform
79%
Pipeline11%
Vessel 1%
20072006 2008 2009 2010 2011 2012 2013
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1,9352,222
3,095 3,423 3,413 3,729
4,3734,753
1,997
1,102
2,9782,352
3,069
4,480
2,072
6,503Sales
New orders
(Unit: Sales in KRW bn, new orders in USD mn)
RELATED COMPANIES AND
ASSOCIATIONS
3332 OFFSHORE PLANT
Samsung Heavy IndustriesSamsung Heavy Industries, the world’s second-largest shipbuilder, has an order backlog of 91 vessels or 8390,000 DWT, as of August 2014. Drillships account for the largest share of the total ships constructed by the company as well as the total order backlogs. Also, Samsung Heavy Industries is building the world’s largest LNG-FPSO for Shell. •�Samsung Heavy Industries has an order backlog worth USD 37 billion as of July, 2014, which
breaks down to offshore plant facilities such as drilling rig and production facilities (71%), commercial vessels such as LNG carriers and container carriers (29%). •�The sales portion of the offshore plant segment has been growing. The operating margin
declined from 10.8% in 2010 to 6.2% in 2013 due to cuts in ship prices and cost hikes.
Samsung Heavy Industries’ order backlogs (left) and sales (right) by business unit
Cost breakdown of Daewoo Shipbuilding & Marine Engineering
•�The sales breakdown shows that the offshore plant business has increasingly contributed to sales since 2009. Among total sales in 2014, commercial vessels and offshore plants are estimated to account for 36% and 64%, respectively.
Daewoo Shipbuilding & Marine Engineering’s sales contribution by product
* Source: Samsung Heavy Industries IR (August, 2014)
Daewoo Shipbuilding & Marine EngineeringDaewoo Shipbuilding & Marine Engineering, the world’s third largest shipbuilder, has an order backlog of 105 vessels or 1,420,000 DWT as of August 2014 and is building LNG-FPSO for Malaysia Petronas. •�Daewoo Shipbuilding & Marine Engineering has been undertaking drillship, FPSO and floating
storage & regasification unit (FSRU) projects. •�Daewoo Shipbuilding & Marine Engineering is experiencing a decline in steel plate costs and
operating profit due to low ship prices and an increase in equipment costs, labor expenses and outsourced processing expenses.
20072006 2008 2009 2010 2011 2012 2013
20
15
10
5
-
15
13
11
9
7
5
3
1
-1
6.4
8.5
10.6
13.414.5 14.8
1.6
4.7
7.16.1
10.8
8.7 8.3
6.2
13.1 13.1
OffshoreCommercial vesselE&IOP margin
20072006 2008 2009 2010 2011 2012 2014.72013
263
421 407383 375
487
393 372 370
OffshoreCommercial vessel
(Unit: USD 100 million) (Unit: KRW trillion, %)
06 RELATED COMPANIES AND ASSOCIATIONS
* Source: Daewoo Shipbuilding & Marine Engineering IR (2014.10)
200720062005 2008 2009 2010 2011 2012 2013 2014e
100
90
80
70
60
50
40
30
20
10
0
21
15
15
31
18
14
16
15
32
23
13
13
11
36
27
14
12
14
31
29
12
11
27
15
35
13
19
22
10
7
29
18
19
29
3
12
19
10
11
25
7
27
20
28
25
11
30
25
36
64
Production Unit &
Offshore, ect.
Drilling Unit
(Drill ship, semi-rig)
LNG
Cont.
Tanker
Bulk & Other
(Unit: KRW 100 million)
20082007 2009 2010 2011 2012 2013
10.90.80.70.60.50.40.30.20.1
0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
201420082007 2009 2010 2011 2012 2013
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2014
Steel Plate
Main Engines
Equipment
Pipes
Other Materials
Labor
Expenses
SG&A
Operating Income
(Unit: %)
(Unit: %)
3534 OFFSHORE PLANT
•�The association supports the Korea Shipbuilding Research Association in an effort to manage government-invested projects, to establish a system linking academia and industry, to identify mid- to long-term tasks for technology development and to undertake B2B network-building projects for the shipbuilding and offshore industry.
•�The association pursues various efforts to enhance international cooperation and address trade conflicts (operate the International Information Committee; attend the plenary sessions of the OECD WP6 and Supply-Demand Subcommittee; participate in JECKU (Japan-Europe-China-Korea-USA) meeting among shipbuilding companies; participate in the new OECD shipbuilding agreement, other international conventions and exhibitions, etc.; seek domestic procurement and the standardization of offshore and shipbuilding equipment; enhance labor / safety and healthcare / environment management; conduct market survey and analysis; and undertake information system projects).
Korea Offshore & Shipbuilding Association (www.koshipa.or.kr)Objective of establishment: The Korea Offshore & Shipbuilding Association was established in July of 1977 to enhance the market information system and mutual benefits through collaboration between shipbuilding and offshore plant companies and industry-wide cooperation and to boost the growth of Korea’s shipbuilding and offshore industry and shipbuilding exports by further developing the shipbuilding and offshore sector. Key roles: The association helps create a level playing field for member companies, operate the productivity consultation committee and enhance information exchange and international cooperation. •�The association operates the policy consultation committee to establish a fair and orderly
market for member companies. The policy consultation committee is responsible for 1) making key policy decisions, 2) promoting cooperation with shipowners’ associations in Korea and abroad, 3) operating various consultation committees and 4) coordinating joint efforts to promote international cooperation. In addition, the association holds the shipyard leadership meetings 1) to share information on ways to improve shipyard operations, 2) to provide support and tasks for consultation bodies created under the association and 3) identify policy suggestions and develop joint countermeasures.•�The association operates the Productivity Consultation Committee, which consists of sub-
operating committees related to hull, ship engine, ship equipment, painting, commissioning, quality and loading, to enhance productivity and promote technology development. The Productivity Consultation Committee 1) enhances member companies’ activities for productivity growth, 2) holds consultations on ways to improve production technologies, 3) publishes activity reports on department committees, 4) organizes seminars for division committees and 5) publishes the shipbuilding directory. •�The association runs the Production Management Committee to exchange information on
production and general market trends, identify challenges in the production field and propose improvements and operates the Technology Consultation Committee to 1) participate in international conferences such as IMO, 2) share information on design technologies and pursue joint R&D, 3) publish design and equipment standards by segment and 4) organize seminars at the department committee level.
Related associations
06 RELATED COMPANIES AND ASSOCIATIONS
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