Siemens sizes up China

China

TOGY talks to T.G. Zhang, Senior vice-president and general manager of Siemens China. The company has been active in China across numerous industries and sectors including hydrocarbons and power generation. Siemens China is an original manufacturer of rotating equipment for the power generation sector and wider hydrocarbons industry.

Established in China’s market in 1872, Siemens operates as a global multinational company. The conglomerate is present in some 200 countries and active in numerous industries such as hydrocarbons, renewables, energy management and building technologies to name a few. In June 2016, Siemens and Shanxi Natural Gas Limited Company entered into an agreement for the provision of four SGT-800 gas turbines and the associated generators. The infrastructure will be installed in the Shanxi Guoxin Baode and Xiyang decentralised energy projects in Central China. The development is scheduled for completion in mid-2017.

• On local involvement internationally: “China developed the the [One Belt One Road] initiative, which is a great opportunity for Chinese engineering, procurement and construction companies (EPCs) to bring local competitive manpower and equipment abroad. Siemens has a strong local footprint. In the past, we were much more focused on our “local for local” commitment. Today, it is a much more “local for global” commitment.”

• On mixing up the energy mix: “In terms of decentralised energy, China is looking towards energy efficiency and environmentally friendly power generation. Our energy is mainly from coal-fired power by far. Natural gas-fired power still makes up a very small percentage. We need to develop wind and solar energy further, in the meantime natural gas-fired power will become a major investment area.”

In addition to the aforementioned topics, TOGY talks at length with Zhang about the country’s evolving hydrocarbons industry and the decentralised power generation market. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN but you can find the full interview with T.G. Zhang underneath.

What have been Siemens China’s primary projects?
Due to the low oil price there has not been so much investment in the market. However, we had some projects with support from the local government and state-owned companies related to energy efficiency and environmental protection. The first is a big liquefied natural gas (LNG) project for Guoxin Energy. The company invested in decentralised power generation and natural gas, so they need LNG. Guoxin Energy invested in eight LNG facilities. In total, Siemens was awarded work for eight LNG compressors in 2015. In 2016-2017 there are not many LNG projects, but this is a big one. Normally, when we talk about LNG projects, the maximum is two LNG compressors, but this project requires eight.
Siemens is quite successful in natural gas projects in China because we have a local footprint. Another highlight project was in 2016, we provided three RB211 ADGT driven compressor trains for CNPC WEPPIII project in Yanchi boost station. .

What is the outlook of the LNG market given the Chinese government’s initiative to increase the utilisation of natural gas?
LNG is definitely a growing market according to the Chinese government’s thirteenth five-year plan. Its main focus is to use gas to improve energy efficiency and transit to green energy. A clear measure is to double the amount of LNG storage in five years.
Consumption will come from two sides. One side is gas-powered generation to improve our environmental impact. The decentralised energy market will continue booming, so we need much more natural gas. Secondly, there are consumers still using coal in China, which is why we need to build up gas pipeline networks and LNG plants to increase coverage. By doing so, we definitely need to continue building LNG terminals. China is not a natural gas-producing country, but we can get natural gas from Russia and Central Asia, or by sea from the Middle East and Australia. We need to build natural gas terminals to accommodate imports. China also requires coverage in remote areas through pipeline construction. We need to continue building LNG terminals, plants and transportation infrastructure.
According to a 2015 report from the National Development and Reform Commission (NDRC), natural gas comprises 5.6% of the energy mix in China. The NDRC’s original plan was to reach 8% by 2020, but they have now increased that figure to 10% in the same period. It is demanding.

What opportunities does the expansion of Chinese national oil companies abroad provide for Siemens?
China developed the the [One Bet One Road] initiative, which is a great opportunity for Chinese engineering, procurement and construction companies (EPCs) to bring local competitive manpower and equipment abroad. Siemens has a strong local footprint. In the past, we were much more focused on our “local for local” commitment. Today, it is a much more “local for global” commitment. Siemens worldwide can offer a local presence across the globe and provide local supplies.
One of Siemens’ strengths in China is helping Chinese EPCs. To support Chinese EPCs to extend footprint worldwide, we incorporate our EPC strengths in industries such as oil and gas, power generation, shipbuilding and mining with comprehensive portfolio.
We not only play the role of a supplier to EPCs, we also help EPCs win jobs in other countries with Siemens’ local participation. This is a way of starting from the beginning stage. For example, Siemens is providing technology and solutions for a Compressed Air Energy Storage project in Texas, USA, where 50% of the investment is planned to come from Chinese bank loan. Together we plan to develop and identify who is the best EPC for this project from China. We are meeting several EPCs and also introducing Siemens to American businesses. In this way, we provide opportunities and strengthen our collaborations.

How do you assess the future growth of the distributed generation business in China?
In terms of GDP, the average growth across all industries in China will be 6.5-7%. However, there is not much investment planned for the hydrocarbons industry. The NDRC’s latest five-year plan announced the construction of seven mega-refineries by state-owned operators CNPC, Sinopec and the China National Offshore Oil Corporation, each with a capacity of more than 10 million tonnes [73.3 million barrels] in addition to petrochemicals production capabilities.
Private investors are also undertaking refinery projects in Zhejiang province and Dalian in Liaoning province, both with a capacity of 20 million tonnes [146 million barrels]. There will be several big coal-to-chemicals developments and China will continue to develop coal to liquids and coal to natural gas. We definitely see a great opportunity for compressors and power generation as an investment.
In terms of decentralised energy, China is looking towards energy efficiency and environmentally friendly power generation. Our energy is mainly from coal-fired power by far. Natural gas-fired power still makes up a very small percentage. We need to develop wind and solar energy further, in the meantime natural gas-fired power will become a major investment area. We have centralised power plants and decentralised power plants, which have a lot of advantages in efficiency and their ability to achieve lower emissions. They can offer electricity, heat and cooling for local consumption or buildings. Decentralised energy can achieve 80-90% efficiency via gas, solar, wind or biomass. Siemens excels in gas-fired decentralised power generation, where we can provide a wide portfolio of gas turbines ranging from 4 MW to 400 MW.
These markets are booming. The government has planned to build 1,000 such plants over the span of 12 years, but due to a shortage of natural-gas supply then and difficulties in connecting with grid infrastructure it was postponed. Only from 2015 did these projects take off again. Now, there is a lot of activities. In January 2016, Siemens received its first ever SGT-800 order (4 units) in China for two natural-gas distributed generation projects in Shanxi Province. Further in April, with our local partner Siemens won 4 more SGT-800 units and pre-awarded for another 6 units from Golden Concord Power Group Limited (GCL). We plan to bid on several similar projects, and see this as a great opportunity. There will be many natural gas ports, pipelines and LNG projects to feed those plants.

How important is having a local presence in China for oil and gas equipment and services companies?
Siemens is very focused on the Chinese market. We generated revenue of more than EUR 6 billion in China and have more than 32,000 employees in the country at 70-80 local operations facilities, including 15 manufacturers. Localisation is not only about products but also local competence and technical strength. Siemens produced most of our compression products with Chinese engineering, sourcing, supply chain management and production, with some 300 employees in our turbo machinery plant in Liaoning province. In total, we have around 500 people working on our compression business alone in China.
There are key benefits to localisation. First, with the geographical proximity to our customers we can respond quickly during the project acquisition period to identify and fully understand their needs. This is why we need employees who can speak Chinese and communicate with customers. Second, we create a value chain for our customers, with strong suppliers and low costs. This is why we do the manufacturing in China. It makes us quite competitive compared to international companies such as those in Germany, in the USA, etc. Third, responsiveness is very important; we need to provide very fast after-sales response. This is not only for installation and commissioning but also after-sales services. If there are any issues, we can send our people to solve their problems immediately. At the same time, we are also trying to help customers optimise their processes through modeling projects and modifying their existing compressors to increase efficiency.

Geographically, in which areas do you concentrate your business interests outside of China?
Chinese EPCs play quite an important role in Africa. Africa needs infrastructure, construction skills, power plants and support for energy projects. China also has a very good relationship with Iran. The country fully opened its doors to Chinese investors, so many EPCs today focus on Iran. There are also other Asian and South East Asian countries such as Malaysia and Indonesia that China is active in, as well some business in Europe and North America. For Siemens abroad, a lot of business comes from the Middle East and Africa. In 2016, –we provided 12 compressor trains with the co-operation of SEI to the Petronas’ RAPID refinery project and Hengyi’s Brunei PMB refinery project. To better meet EPC’s needs, Siemens also provides local services through project bidding, onsite installation and commissioning to maintenance. We also provide the first application of STC-SV (08-8-B) centrifugal compressor in the BBS pipeline Bozoy project in Kazakhstan together with CNPC. The application improves the efficiency of the compressor that provides motive force for transporting 15 bcm (530 bcf) of gas every day.

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