Full cycle: Engineering for deepwater offshore in Malaysia

Malaysia

Managing director for Saipem Asia Max Bellotti analyses the deepwater engineering market in Malaysia and what the country needs to do to become the centre of deepwater engineering and construction in Southeast Asia. Italian oil and gas contractor Saipem provides full-cycle engineering, procurement, construction, installation and commissioning (EPCIC) services both onshore and offshore.

What is the development outlook for EPCIC projects in general, and deepwater EPCIC projects in particular, in Malaysia?

In the past, EPCIC projects were split into various work or services such as engineering, fabrication and offshore construction. Engineering went to one company, fabrication to another and installation to yet another. Today, we are seeing a tendency towards tendering large, full-cycle EPCIC projects. We expect this to continue in both the short and long term for complex developments and projects.

With all of these new deepwater blocks emerging off the coasts of the states of Sarawak and Sabah, including Brunei, there will be a continued market for EPCIC work. Oil and gas companies will likely need EPCIC contractors that are able to engineer feasible and fit for purpose facilities, aiming at the most cost effective solution to build, especially with the actual oil price levels. There is a desperate need for experienced EPCIC contractors at the initial phase of conceptual design.

While EPCIC work is thriving, there are not many immediate prospects in deepwater. At the moment, 75-80 percent of offshore fields in the region are situated at shallow water depths of less than 120 metres, with a few exceptions. EPCIC companies have to wait for investment decisions and a way forward from oil and gas companies, but they can help by working closely with them to make a development economically viable.

What challenges are there in the development of deepwater EPCIC in Malaysia?

There are fewer deepwater developments in Southeast Asia compared to Africa or the Americas, and licences for deepwater exploration in the region only began to be issued in 2003. Malaysia currently has four deepwater developments: Kikeh, Gumusut-Kakap, Kebabangan and Malikai.

Continuity is going to be the major challenge for Malaysia’s deepwater market today. Due to the oil price slump, there may be fewer tenders for deepwater field developments. Missing that continuity in deepwater development makes it difficult to invest in more permanent teams, engineering centres or to bring technology and skill into the country permanently.

Without continuity, companies will be coming and going. With lower oil prices and a reduction in financing, projects that require major capital expenditure and longer-term commitments will be more limited. However, when deepwater projects become established in the medium and long term, you will see companies follow suit. Firms will bring their experience from other deepwater regions to Malaysia.

How viable is Malaysia as a centre for offshore EPCIC work in the Asia-Pacific region?

There will probably be two main oil and gas centres in Southeast Asia in the years to come: one in Jakarta, Indonesia, and one in Kuala Lumpur. Developing a business in Malaysia is relatively attractive because the government has a strong intention of making Kuala Lumpur a centre for oilfield services and manufacturing.

At the end of the day, the city’s development as an oil and gas services centre is driven by oil and gas companies. Investments or projects must attract business. Operators such as Shell, Exxon and the ConocoPhillips already have their operations here, so being close to the clients is an advantage. Saipem decided to downsize its regional centre in Singapore and move it to Kuala Lumpur, which has been a trend among other players in Southeast Asia.

There are a lot of opportunities in other countries in Southeast Asia, but they are not yet mature. Malaysia is the best prospect for becoming a regional centre, because the oil and gas industry has developed over a few decades. It is much easier to establish businesses due to the enhanced supporting industries, established infrastructure and a readily available workforce.

How can the skill level of the Malaysian labour force be improved as it looks to becoming an EPCIC centre?

In Malaysia there are some highly skilled workers, but the entire oil and gas industry should reinforce its workforce.

There is no point bringing people from other parts of the world; companies must attract the available skills in Malaysia to form the nucleus of their business and at the same time recruit young people to train and provide with tools and experience.

Oil and gas is a global business. Workers go to where the activity is, and skilled Malaysians have been known to work in the Middle East or the Americas. Growth needs to be sustainable in order to maintain the workforce in the country, and that only happens if you have projects and activities that bring revenue and turnover.

About the company: Saipem moved its regional headquarters from Singapore to Kuala Lumpur in 2014. The company is making two joint bids with Malaysian firm SapuraKencana for the front-end engineering and full turnkey EPCIC contracts for the Sepat Gas Development Project and Kasawari Gas Development Project. While Saipem’s primary fabrication facility is located in Karimun Island, Indonesia, it intends to develop an EPCIC centre in Malaysia to serve the regional market.

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