Another Shot Across the Bow?...EnCana in Colorado with Chinese Drillers?
Posted by Prof. Goose on July 11, 2005 - 7:53pm
Updated to add: Interestingly enough, this piece says that the Chinese drilling company is already here! (hat tip: Liam at the Energy Bulletin)
So, first the Chinese want to buy a second-rate oil company like Unocal to test US willingness to participate in true world economic interdependence or see if we will get protectionist.
Now, it seems another test is on the horizon...here's a story today (yes, PG is citing a story from the Washington Times...) about EnCana bringing in a Chinese drilling company to work in Colorado:
Technorati Tags: peak oil, oil
Some Chinese drill crew members already have arrived in western Colorado, preparing to start drilling for natural gas in the Piceance Basin.This hits on many of the points that HO has been talking about regarding trained drillers in the US, eh?
So, first the Chinese want to buy a second-rate oil company like Unocal to test US willingness to participate in true world economic interdependence or see if we will get protectionist.
Now, it seems another test is on the horizon...here's a story today (yes, PG is citing a story from the Washington Times...) about EnCana bringing in a Chinese drilling company to work in Colorado:
Canadian oil giant EnCana is considering bringing in Chinese companies to construct and operate drilling rigs in the Colorado Rockies, as the region struggles to keep up with demand and rising energy prices.There's lots of little interesting snippets in this piece...
EnCana, a major player in the Piceance Basin of western Colorado, said Chinese labor is cheap and the workers are well-educated. The move would be scrutinized in Washington, where politicians are uneasy about allowing Chinese workers to acquire access to U.S.-based oil and gas facilities.
"I am totally against the Chinese government running the jobs in our country," said Rep. John Salazar, Colorado Democrat, whose district is most affected by drilling. "With the Chinese government getting involved, it's not even a competitive business model."
Mr. Salazar and other U.S. lawmakers already are concerned about the China National Offshore Oil Corp.'s interest in buying the U.S. oil and gas conglomerate Unocal Corp.
The House voted June 30 to block China's cash bid of $18.5 billion. The 398-15 vote came hours after China cited U.S. "political interference" in what it called a purely commercial matter.
"Outsourcing has already claimed millions of jobs," Mr. Salazar said. "We cannot allow that to happen within our own borders. Rural communities have been hit hard enough. We need to keep American jobs in America."
EnCana is deciding whether to construct the drilling rigs in China and import them with Chinese workers to the United States.
"Some operators in that part of the world have explored the [Chinese] option," EnCana spokesman Alan Boras said. "It was mentioned [by EnCana executives to analysts] as a way to increase capacity of the rig fleet in the United States.
"It's our understanding the Chinese have the rigs and the crews and are trying to market that capacity. It's not imminent for EnCana, and we're not working on a specific deal."
The oil and gas well services sector in Colorado is struggling to meet demand for new rigs and to find enough workers to operate them. As consumption of oil and natural gas grows, the effects have been felt globally.
"If they were just talking about bringing in foreign workers for the sake of lowering costs, then I think it could be grounds for pretty substantial opposition. But it's because the industry is running pretty much flat out," Mr. Boras said.
Although China's increased participation in the U.S. oil and gas industry is a prickly issue in Washington, the EnCana spokesman predicted that U.S. policy-makers would concede because Chinese companies would fill a dire need. With an eye on lower costs, EnCana is in a search to secure long-term contracts.
"We can manage costs better by locking in for longer terms," Mr. Boras said. "And given the life span of our resource, we should be able to lock in. As you adapt drilling technology, you learn. And if you can reduce drilling at a well from, say, 20 days to 15, then you can generate great economies of scale."
The western Colorado field is EnCana's most lucrative prospect and has a capacity of approximately 4.6 trillion cubic feet.
As Chinese workers gain access to U.S. oil and gas facilities, policy-makers worry about trading technology such as rig prototypes, whereby a Chinese manufacturer acquires know-how from EnCana's U.S.-based operations, Frederick Cedoz, vice president at GWEST LLC, told Canada's National Post. GWEST (Global Water & Energy Strategy Team) is a Washington energy policy consulting firm.
The cost of drilling in Colorado has nearly doubled since last year, EnCana officials said. Rates increased from $8,500 per day to $14,000 per day in one year.
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I do believe the phrase "you can't suck and blow at the same time" is wholly appropriate.
ExxonMobile inks a deal over the past few days worth billions in China to revamp their refinery infrastructure. Presumably the congressfolks aren't going to stand in the way of that one.
And generally speaking Wallmart is given a pass for importing cheap Chinese goods.
But buying chinese drilling rigs - which cant be built or deployed nearly fast enough - is causing them grief? Just silly.
ECA has been selling off all its international holdings to focus on North America unconventional natural gas. Gwyn Morgan (CEO) is a smart smart man. If they are betting on the N.A. market - the US market in particular - its for energy security reasons. Why not be the big fish in the big consumer pond with a relatively safe - domestic - supply.
The Rep who complains about this is standing in the way of someone trying to enhance US energy security not the other way around.
Disclaimer I used to do work for ECA.
Speaking of China, again... what else is new these days:
Looming China oil output peak means import overdrive
Published: Monday, 11 July, 2005, 12:33 PM Doha Time
BEIJING: Chinas surging oil demand has captivated markets and captured headlines. The quiet, steady growth of its domestic crude production which is larger than most Opec nations has received less attention.
But as Chinas core oilfields grow older and new finds fewer, output will one day peak, revving up the race for international supplies in order to sate rapid demand growth while making up for declining reservoirs in the worlds No 2 oil consumer.
Chinese officials are confident that day is at least a decade away; some Western experts expect it far sooner than that.
We believe the peak could come as early as 2006, looking at the number of wells being drilled and the exploration underway, said one Beijing-based industry analyst, who declined to be named due to the sensitivity and secrecy of the upstream industry.
http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=44065&...
A reasonable analysis:
China in Contest with the Great Nations over Global Oil Resources
http://english.daralhayat.com/business/07-2005/Article-20050711-068d8421...
Can't suck and blow at the same time, I really like that, you've got that right. As a Colorado resident, I'll say Salazar is using this nonsense to show "he cares". And also to make sure that any Chinese workers that do end up here will end up getting lynched. Way to go, Ken! (Christ, I even voted for this son-of-a-bitch.)
Hadn't seen anyone link in this NY Times business article from Saturday, China Oil Giants Crave Respectability and Power. A good analysis of China's current and future acquisition plans.
Whoops! I mentioned the wrong Salazar brother in Colorado. It's John in the House, not Ken in the Senate. At least I didn't vote for him, he's not representing my district.
Also, Mike referenced this deal Exxon Joins China Project With 2 Others in his first post here.
The Moonie Times is very china-centric.
The Reverend, and Messiah, Sun Myung Moon, is an old anti-Communist from way back, and he tends to focus a lot on E. Asian communists like China and North Korea.
must read in the NY Times.
http://www.nytimes.com/2005/07/12/business/worldbusiness/12oil.html?adxn...
Great quote from James R. Schlesinger "We have only two modes - complacency and panic."
indeed.
It is eerie how much rusting oil field equipment there is lying around here in Texas. I always wonder if everywhere looks like this.
Big change from just a few years ago. Of course, not everything is going downhill, there is plenty of offshore work right now, but when oil was $20/bbl we always heard "if it goes to $40 the work will pick up again"
Today we're at what, $60?
ben -
Want some work? Then all you have to do is look. We are at 100% utilization in offshore rigs, and around 95% on land rigs. The problem isn't rig equipment - it's people. There aren't enough to pick up any more rigs.
The equipment you see all over Texas is usually older stuff that has been replaced by something more efficient. Chances are that some guy thought he would hold on to his stuff in the late 1980's until the price went back up. When it didn't, it just kept rusting until it cost more to refurbish it than to buy a new one from Korea or China
With rigs, once they are stacked (mothballed), they deteriorate rapidly. Offshore rigs that remain stacked for more than a year or two cost a lot to refurbish (millions), and many simply wind up too rusty to do anything with.
Land rigs get cannibalized by their owners to support the working rigs, until there really isn't much left that is worth salvage. "Rig 12 is stacked - don't buy a pump, we'll just borrow that one." And then it is never replaced.
A lot of the older technology stuff is simply not economical or usable with the type wells we drill today. Wells are deeper, hotter, more directionally complicated and require bigger equipment. The basic pump in the 1970's is not enough to use modern diamond drilling bits, which let us drill 50-100% faster. We cannot make economics pay out on the wells we drill today if we use old equipment that forces us to drill too slowly.
So what you see is just attrition due to economics, time and technology advancement.
We let them rust, because it just isn't cost effective to do anything else...
If a 1980's rig was in new condition, the only possible difference between it and the most modern land rig today would be the top drive. Otherwise it would be basically the same, and just as capable. There are hundreds of "kelly" (non top drive) rigs drilling today, just like they did 30 years ago.