EMERGING TRENDS FOR EPC
FIRMS IN CHINA AND BEYOND
INSIDE INDUSTRIAL INFRASTRUCTURE (IIICORP)
BUSINESS INTELLIGENCE | SUMMER 2016
Author: Barry Zhou (Shanghai)
Prepared by IIICorp for the sole use of the Export-Import Bank of the United States
Customized research
US Export-Import Bank
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OvervieKey findings
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Formatted: Font color: Purple
Foreign (US, European, Japanese) EPC involvement has decreased in China both in volume and value.
Local EPC involvement has increased due to: competitive pricing, familiarity with local markets and process
and links to local major industrial players
There has been an increase in international projects serviced by Chinese EPCs due to China’s ‘One Belt, One
Road’ initiative, especially in South and South East Asia
The power sector is dominant in international projects serviced by Chinese EPCs due to participation by
Chinese power generation and distribution companies abroad
Major opportunities for foreign EPCs exist in China’s private sector which tends to hire more foreign EPCs (largescale projects requiring sophisticated technology, engineering, such as LNG, tend hire foreign EPCs)
Table 1
Foreign EPC activity in China by volume and value
1.4
25
1.26
21
20
Value
1
15
0.8
0.6
0.41
8
0.4
0.2
0 3
3
10
Volume
1.2
0.3
5
0.1
0.12
3
0
5
0
2011
2012
2013
2014
2015
2016
Year
Value (USD billion)
Volume
o
FOREIGN EPC ACTIVITY IN CHINA HAS DECINED IN VOLUME AND VALUE
Foreign engineering procurement and construction (EPC) contractors have seen a marked decline in the volume
and value of Chinese project activity in the energy, water and waste, environmental and related industrial supply
chains over the past two years.
In the period from 2011 to 2016 which IIICorp has been tracking such activity (see table 1), foreign EPCs have
undertaken a total of 43 deals with a total value that exceeds USD 2bn.1 While 2013 represented the peak of
activity, with 21 done deals being sealed, 2014 represented the high point when assessed by deal value.
The surge in value can be largely attributed to LNG activity, an industry where foreign EPCs have a strong presence
and which has experienced a decline as a result of the fall in the price of oil that began in 2014.
Source: IIICorp database
1
Note: of the 43 deals reported, 13 have a contract value.
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The decline in foreign EPC activity in China may be attributed in part to the decline in overall activity, particularly
in the LNG sector. However, the decline may also be attributed to an increase in the activity of increasingly
sophisticated, lower-priced local EPCs, which also offer familiarity with local markets and procedures.
Table 2
Chinese domestic EPC activity by volume and value
4.5
50
4.1
3.73
4
45
43
41
3.5
40
Value
30
2.5
25
2
20
1.5
15
1
0.5
0
Volume
35
3
11
0
0
2011
0 4
10
10
0.05
5
0.04
0
2012
2013
2014
2015
2016
Year
Value (USD billion)
Volume
Source: IIICorp database
The decline in foreign EPC activity in China can therefore be seen as part of a longer-term trend reflected in table 2
above. The figures show that Chinese EPCs have experienced a steady increase in activity, particularly in 2014 and
2015, when foreign EPC activity experienced a major decline in volume and value.
Table 3
Break-down of foreign EPC activity in China - 2011 to 2016
3
2
US
4
16
France
Netherland
Germany
9
Singapore
Norway
9
Source: IIICorp database
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US EPC firms play a dominant role in China, both in terms of the number of companies operating there and in
terms of deal activity (see table 3 on preceding page). French and Dutch EPC activity may be attributed to, in both
cases, the activities of just two firms compared with nine US-based ones.
This strong position can be attributed to its dominance in the field of natural gas (see tables 5 and 6 below)
Table 4
Foreign EPC activity by sector
18
16
14
12
10
8
6
4
2
0
17
5
5
4
4
2
1
1
1
1
1
1
Deals
Source: IIICorp database
Table 5
Foreign EPC natural gas activity in China - 2011 - 2016
10
9
9
8
7
6
5
4
3
3
2
2
2
1
1
0
0
2011
2012
2013
2014
2015
2016
Deals
Source: IIICorp database
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Natural gas comprises the largest sector for foreign EPCs in China and the decline in activity is largely in line with
the fall in the price of oil which has in turn led to a decline in Chinese natural gas projects. However, the consistent
ongoing involvement of foreign EPCs in the activity that has occurred during this time indicates that there is an
ongoing need for their expertise and that significant future opportunities may emerge.
Table 6
Break-down of foreign EPC LNG activity by project type, 2011-16
1
2
2
9
3
LNG factory
LNG storage tank
FLNG
Offshore natural gas
LNG carrier
Source: IIICorp database
Foreign EPC activity in the natural gas sector is almost entirely focused on projects involving liquefied natural gas
(LNG). This activity has been broken by project type in table 7 (above) with land-based LNG production facilities
comprising more than half of all deals. The projects are spread across 11 Chinese provinces and/or regions as
shown in table 8 below.
Table 7
Foreign EPC natural gas activity within China, 2011-16
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
4
2
2
2
1
1
1
1
1
1
1
Number of projects
Source: IIICorp database
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Table 8
Top foreign EPCs in China by volume, 2011-16
10
9
8
8
8
6
6
4
3
3
2
0
Black & Veatch
CB&I
Technip SA
Chemtex
International
United Envirotech
TGE Gas
Ltd
Engineering GmbH
Number of deals
Source: IIICorp database
Table 9 above ranks the leading foreign EPCs by the number of projects they have been awarded. A total of 22
deals that Black & Veatch (B&V) and Chemtex International worked on were done as a consortium. Most of these
involved LNG projects with B&V specialized in supplying its PRICO technology while Chemtex was responsible for
EPC construction services.
It is worth noting that 60% of the project owners for the deals undertaken by foreign EPCs were state-owned
companies, comprising over 60% of total deals signed (see table 10 below). Private project owners, which only
comprise about 35% of the total, may provide an opportunity for foreign EPCs in the future as China’s energy
sector is deregulated
Table 9
Foreign EPC activity by project owner, 2011-16
1
15
Private
State-owned
Unidentified
27
Source: IIICorp database
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Japanese EPC contractors
The activity recorded by IIICorp has been largely focused on US and European firms however Japanese EPC firms
have been experiencing a similar trend.
JFE Engineering Corporation, a Japanese EPC that operates in the energy, steel and environmental sectors, told
IIICorp that the firm had been experiencing a steady decline in Chinese project activity since 2012 and had, as of
2013 begun to turn their focus on other markets, notably Southeast Asia.
The story is the same at Mitsui & Co, a diversified Japanese corporation with a presence in the energy,
infrastructure, mining, metal, transportation sectors. A senior source at the firm’s finance division, which includes
a project finance team focused on China, told IIICorp that it had been experiencing increasing difficulty locating
projects due to the country’s “opaque market”. The firm has had some success maintaining a position in China’s
LNG industry, though this is less evident than the Western firms detailed above. This comes despite that fact that
Mitsui possesses advanced technology and experience in LNG and is active in promising markets such as
Indonesia, India and Bangladesh.
IIICorp has tracked Mitsui’s involvement in a number of Chinese shipbuilding and compressor-related deals2
indicating that the firm’s activities there comprise one of two main types. One entails the provision of
technological support to local contractors or supplying equipment to project developers. In March 2015 Mitsui
provided its privately-owned partner Shenyang Blower Works Group Corporation with axial compression
technology support for a large air separation unit (ASU) that the latter required for a coal-to-liquids project being
developed by Shenhua Ningxia Coal Industry Group. The second activity type involves working with local EPC
firms, such as China Shipping (Group) Company, which are engaged in shipbuilding, especially LNG carriers.
JGC Corporation, a Japanese company specializing in EPC services and technological support in the energy and
chemicals sectors, is in a similar position. IIICorp’s reports show that the firm’s Chinese activities involve the supply
of its technologies in LNG, methanation process, water reuse and zero liquid discharge (ZLD). While the firm has
partnered with several major state-owned Chinese project owners, such as CNOOC, it has not done so in the
capacity of an EPC.3
Reasons for the decline
Several factors have contributed to the decline in foreign EPC activity and the growth in domestic activity. The
growing competitiveness and proven professionalism of Chinese companies combined with their lower costs have
proven to be a powerful combination. And in a state-controlled economy, these firms’ familiarity, connections and
knowledge about the local markets has enhanced such advantages.
A number of the major Chinese EPC companies are directly linked to major industrial players and project owners.
Sinopec Engineering Incorporation and China Huanqiu Contracting & Engineering Corporation, being the
respective EPC arms of Sinopec and CNPC, are well-positioned to take on many domestic project opportunities.
Local EPCs can also utilize their familiarity with the nuances of China’s tendering process and connection with local
2
For all relevant Mitsui opportunities see IIICorp:
https://www.iiicorp.com/?opportunities/opportunity/43261,43629,40162,38930,37500,37476,36969,35493
3
For all relevant JGC opportunities see IIICorp:
https://www.iiicorp.com/?opportunities/opportunity/44264,39687,38386,36228
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project owners and authorities to their advantage. This provides them with a critical advantage in a market like
China where the procurement process is less structured, which for a foreign EPC represents a bigger obstacle.4
Chinese EPCs increased foreign activity
Chinese EPC companies have been quick to extend their domestic gains into foreign markets. Table 11 below,
which is based on IIICorp’s proprietary data, reveals that there has been a major surge in the volume and value of
foreign projects that Chinese EPC firms have been involved with over the past two years. The value of the deals
tracked represents an increase of over 400% CAGR in the period from 2012 to 2016.
Table 10
Chinese EPC foreign project activity
30
18
25 16.37
25
14
12
10
15
8
10
6
7
5
3
0.02
2012
4
3
2
1.87
1
0.63
0.6
2013
Value
Volume
20
0
16
2014
2015
0
2016
Year
Volume
Size (USD billion)
Source: IIICorp database5
The increase coincides with the central government’s ‘One Belt, One Road’ (B&R) initiative, which aims to
strengthen China’s economic and political ties with countries across the Eurasian continent that form part of the
initiative. A key feature of this initiative is the encouragement of Chinese companies to ‘go abroad’ and export
their products, technologies and service to help develop the infrastructure of neighboring countries included in
the initiative. As a result, many Chinese EPCs have participated in industrial and infrastructure projects in such
countries, many of which are less developed.
It is for this reason that the regions that that have experienced the biggest increases in volume and value of EPC
opportunities for Chinese firms have been Southeast and South Asia, as per table 11 on the page below. Of the
four most active countries for Chinese EPCs, three of them (Indonesia, India and Pakistan) play a key role as
destinations along the B&R initiative.
4
Zheng Yu, ‘Finding the real buyer’, Financial Times, 31 Jul 2013. http://www.ft.com/cms/s/2/86f7820e-fa1711e2-b8ef-00144feabdc0.html?ft_site=falcon&desktop=true#axzz4DCmx6KEp
5
Note: of the 39 deals reported, 26 are recorded of contract value
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Table 11
12
12 9.37
9
Volume
10
8
8
5.52
5
6
4
2.21
2
0
Southeast South Asia Latin
Asia
America
2
1.62
Africa
1
1
0.6
0
Middle
East
Central
Asia
0
Europe
10
9
8
7
6
5
4
3
2
1
1
0.16 0
West Asia
Size
Chinese EPC foreign projects by region, 2012-16
14
Region
Volume
Size (USD billion)
Source: IIICorp database
Table 12
10
9
8
7
6
5
4
3
2
1
0
9
8
7.28
7
6
6
5
5
4
3.81
3
Size
Volume
Chinese EPC foreign projects by country, 2012-16
3
2.21
2
1
0.15
Indonesia
Brazil
India
0
Pakistan
Country
Volume
Size (USD billion)
Source: IIICorp database
Indonesia is the largest source of projects for Chinese EPCs, according to IIICorp’s database, comprising more than
70% of the region’s total activity. These figures are in line with China’s official statistics, such as the 2015 China
Statistical Yearbook. The latter, which is issued by the National Bureau of Statistics, ranked Indonesia as China’s
third largest generator of project revenues in Eurasia, after Saudi Arabia and Iraq.6
6
National Bureau of Statistics, 2015 China Statistical Yearbook.
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Indonesia, which has also been a major attraction for Japanese and Korean EPCs, is on the Chinese radar because
of its geographic proximity, the large Chinese population in the country and the large size and growth rate of its
economy which has resulted in its need for infrastructure and industrial facilities. Such factors, combined with its
relatively poor infrastructure and technological capabilities, has offered Chinese EPCs far more than its developing
neighboring countries.
Chinese foreign EPC activity by sector
The IIICorp data in table 13 below highlights the significant role that the power generation, transmission and
distribution industries in Chinese EPC activity. Six of the eight Indonesian projects involved power generation, for
example, and most of these involved coal-powered facilities. Coal, due to its abundance and low cost, remains in
high demand in most developing countries as a source of base-load power and China, which generates over 60%
of its domestic power from this source and has accumulated decades of expertise in harnessing is well-positioned
to benefit.
Table 13
Chinese foreign EPC activity by sector, 2012-16
1
1 1
2
Power generation
Power transmission
3
Oil & gas
19
4
Water treatment
Coal chemical
Waste treatment
Agriculture
8
Chemical
Source: IIICorp database
Table 14
China Huadian Corporation and Shenhua Group are among those Chinese power generators to have awarded EPC
contracts for foreign power projects to their own EPC service arms. IIICorp recently reported that Huadian was
conducting a feasibility study together with another Chinese company on a 4x1000MW coal fired power plant
project in West Java, Indonesia. The state-owned company would be taking on the EPC services role for this USD
402m project7, despite having teamed up with Black & Veatch on four other deals in the region.
Engineering companies and the engineering branches of equipment manufacturers are also active players in
China’s foreign EPC expansion. China National Electric Engineering Co Ltd (CNEEC), a state-owned engineering
design and EPC company, is conducting EPC services for the Sumsel-5 power plant in South Sumatra, Indonesia,
7
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/47793
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supported by a USD 318m loan from China Development Bank.8 In June 2016, IIICorp reported that Harbin Electric
International Co, a power EPC company and a subsidiary of the state-owned power generation equipment
manufacturer, Harbin Electric Company Limited, got the EPC contract for a 350MW coal-fired power plant in
Pakistan. The deal represented one of 16 EPC projects it had done or was undertaking in the country, entailing the
provision of design, supply construction, installation, testing, commissioning, training and technical services.9
Privately-owned Chinese EPC firms have also been quietly participating in foreign thermal power projects. IIICorp
recently reported that China Western Power Industrial Co won an EPC contract for a coal power plant expansion
project in Turkey, for example. The 370MW, USD 164m expansion is one of a number of foreign projects the
company signed since it was granted a foreign EPC license by China’s Ministry of Commerce (MOFCOM) in 2011.10
Table 15
Chinese foreign EPC power gen activity by source, 2011-16
9
8
Volume
8
7.02
6
6
4
4
4
2
2
0.51
0
Coal
Solar
1.15
Hydro
1
1
0.15
Waste
0
Oil
1
1
2
0
Oil shale
0
Natural gas
0
Size (USD billion)
10
Power generation source
Volume
Size
Source: IIICorp database
Many developing countries are strengthening their development of clean and renewable energy, a development
necessitated by environmental issues and which is reflected in the many foreign solar projects that Chinese EPCs
have taken on. The country’s large number of photovoltaic (PV) manufacturers and solar power generation
services companies are a product of heavy government subsidies in the recent past. This resulted in a number of
privately-owned Chinese players advanced technologies and large market share, such as ET Solar and Jinko Solar.
This explains why privately-owned Chinese EPCs play such an active role in foreign projects. Examples tracked by
IIICorp include ET Solar’s partnership with Brazil-based WEG to form consortium and develop professional turnkey
PV solutions. Utilizing WEG’s local knowledge and resources, ET Solar was able to draw on its EPC and operation
and maintenance (O&M) experience to expand into this market.11
8
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/47502
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/48881/EPC
10
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/48948
MOFCOM, http://www.mofcom.gov.cn/article/difang/201606/20160601349745.shtml
11
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/46041
9
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Hydropower is China’s second largest source of power generation and, like coal, one that it has gained abundant
experience and technological knowhow in. This has enabled Chinese EPCs to take on a number of projects, most
of which involve thousands of megawatts (MW) of capacity.
Unlike solar, the dominant players are state-owned companies that have hold the technological expertise and the
resources required for large foreign projects. China Three Gorges Corporation (CTG), one of the largest and most
active players, has been preparing a bid for the EPC and O&M contracts for the 8,000MW Tapajos hydropower
plant project in Brazil, according to IIICorp, which would be one of the 10 largest hydropower plants in the world
when completed. CTG has also established a major presence in Pakistan and is expecting to further expand into
other markets in the B&R regions and Latin America.12
Power transmission is another sector in which Chinese EPC contractors have an active presence in foreign projects.
State Grid Corporation of China (SGCC) along with the many Chinese equipment manufacturers, are increasing
their presence in foreign EPC markets. IIICorp has been closely tracking three cases where SGCC has or plans to
take on Brazilian power transmission line projects. The opportunities for EPC and O&M contracts have arisen as a
result of the Brazilian government’s plan to develop 6,500km of power transmission lines in 20 states.13
Similarly, Chinese power transmission equipment manufacturers have been actively participating in foreign EPC
projects. For example, in May 2016 IIICorp reported on the USD 98m Ethiopian order won by Tebian Electric
Apparatus Stock Co Ltd (TBEA), the largest manufacturer of power transmission related equipment in China. As is
often the case with state-owned Chinese companies, 85% of the project financing will be provided by the ExportImport Bank of China.14 The deal is one of four such power transmission line and substation EPC contracts tracked
by IIICorp, including ones in India, Togo and Kyrgyzstan in, with a total value exceeding USD 600m.15
Table 16
Chinese foreign EPC activity by project owner, 2012-16
4
9
24
Private
State
Unspecified
Source: IIICorp database
12
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/48544
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/47930
https://www.iiicorp.com/?opportunities/opportunity/47974/EPC
14
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/48501/EPC
15
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/39440/EPC
https://www.iiicorp.com/?opportunities/opportunity/48531
13
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The dominant position of China’s state-owned companies’ in foreign EPC projects, as underlined in table 16 above,
comes as no surprise, given that most of these are concentrated in strategic government-controlled industries like
energy.
Table 17
Chinese foreign EPC deal size by project owner, 2012-16
2.16
3.42
12.51
Private
State
Unspecified
Source: IIICorp database
State-owned companies also get the vast majority of large projects, due to the significant long-term resource
requirements these require as well as the important role that funding plays. Hydropower, long-distance power
transmission and offshore oil and gas projects are among those sectors where these factors come into play.
Privately-owned EPC activity is small by comparison and spread across several sectors, including water and waste
treatment, coal chemicals as well as coal and solar power generation. However, their presence has been growing
in recent years, as table 18 below demonstrates.
Table 18
Reported deals by private EPC contractors
6
5
4
3
2
1
0
2012
2013
2014
2015
2016
Deals
Source: IIICorp database
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Opportunities in China’s EPC market
Size, volume, sector and ownership
A key feature of the recent decline in level of activity in China experienced by foreign EPCs in the industries
tracked by IIICorp has been the significant decline in the average project size. Table 19 below shows how the USD
20bn+ of projects that EPCs were awarded in China 2013 fell by 70% to less than USD 6bn in 2014 and has yet to
recover. The increased volume of projects underlines the fact that many of the opportunities involve projects of a
comparatively small scale.
Table 19
Total Chinese EPC activity by value and volume (USD billion)
47
50
100.0%
45
87.8%
40
80.0%
70.7%
35
70.0%
30
25
60.0%
51.4%
20.15
10
50.0%
18
20
15
90.0%
40.0%
9
9
5.91
2.87
5
0.35
0
30.0%
20.0%
10.0%
0.0%
2013
2014
Opportunity size
2015
Number of opportunity
2016
Value decline rate
Source: IIICorp database
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Table 20
Chinese EPC opportunites by sector, 2013-16
40
25
34
23.04
35
20
25
15
Size
Opportunity
30
20
10
15
10
8
10
5
5
1.84
0
Natural gas
Water treatment
0.07
Emission control
0
Sector
Number of opportunites
Size (USD billion)
Source: IIICorp database
Table 20 above presents the three main areas of opportunity for EPC firms in China, natural gas, water and waste
treatment and emissions controls. The chart highlights the inverse relationship between the value and volume of
activity in these sectors. Although there were only nine natural gas related opportunities reported, their total
value reached USD 23bn. Meanwhile, there were three times as many opportunities in the water and waste
treatment sectors with a total value that represented just 9% of the value of gas deals.
For the water and waste treatment sectors, many of the opportunities involve municipal WWT projects which are
relatively small in size and scope and, consequently, cost. IIICorp data indicates that most of these projects have a
total value of less than USD 10m which would be unlikely to need the specialized, higher-cost technologies and
expertise offered by foreign EPCs. Industrial WWT offers greater scope for foreign EPC involvement.
The natural gas industry offers large, expensive and complex contract opportunities. These typically comprise LNG
receiving and storage terminals and LNG production facilities, distributed power generation facilities and longdistance gas pipelines. The equipment requirements for such projects, including gas turbines, specialty steels and
gas compressors often supplied by foreign companies at a higher price than domestically-manufactured ones.
Factors influencing foreign companies
The decline in the volume and value of opportunities for foreign EPC companies in China has been significantly
influenced by the decline in the price of oil. That’s because it resulted in a decline in the number of projects in
such areas as offshore oil and gas, LNG as well as large-scale natural gas and petrochemical developments that
require the sophisticated technologies and engineering expertise that foreign EPCs are best able to supply.
Most of the projects undertaken by the major foreign EPC firms were in these areas. Bechtel’s main Chinese
projects during this period involved deep-water gas field and petrochemical facilities, such as the Liwan 3-1 deepwater gas field, one of the largest offshore gas fields in China. The firm was selected for engineering and project
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management on key areas such as subsea systems, offshore platform and onshore receiving terminal. 16 Another
Bechtel project undertaken during this period was the Nanhai Petrochemical Complex with a capacity of 2.3m
metric tons per year. Bechtel was involved in the construction as well as work force training for the project.17
Partnership and consortia
EPC firms often form a consortium or partnerships to win deals, either with other foreign EPCs or with Chinese
ones. The purpose of doing so is to leverage their respective capabilities in technologies, engineering, project
management, construction and other areas. Teaming up with local EPCs can also significantly increase their
success rate and in the face of the declining opportunities in China, such a strategy has become increasingly
compelling.
The partnership between Black & Veatch and Chemtex International that was formed in 2005 is one successful
example of this strategy. The model involves B&V providing its patented PRICO natural gas liquefaction technology
while Chemtex is mainly responsible for providing lump-sum EPC services. The B&V-Chemtex team has combined
on 22 LNG related projects in China, many of which IIICorp has provided detailed reporting on.18 These include the
400,000 metric tons per annum (tpa) Inner Mongolia-based LNG processing facility it was awarded by privately
owned Erdos Huaqing Energy Co Ltd. The chairman of Huaqing Energy, Mr. Wu Lexian, revealed to IIICorp that the
company has been working with the B&V-Chemtex team since 2005 on two LNG plants in Inner Mongolia and
Sichuan.19 In other cases, such as LNG plants in Jingbian and Yulin city in Shaanxi province and Wuhai in Inner
Mongolia, the team’s technological advantages and servicing quality were described as effective, reliable and
excellent.20
TGE Gas Engineering GmbH (TGE), a German EPC company now acquired by China International Marine Containers
(Group) Ltd (CIMC), had a similar experience. It formed a consortium with Linde AG and together conducted
several LNG projects in China. These included two 1.5m Nm3/d LNG projects in Xinjiang in 2004 and 2012, a
30,000m3 LNG storage tank project in Inner Mongolia in 2014, a natural gas liquefaction peak shaving reserve
centre in Shanxi in 2015 and a 400,000 tons per annum (t/a) LNG reserve project in Inner Mongolia in 2016. In all
these cases, TGE was mainly responsible for delivering EPC and design services while Linde supplied core
equipment such as natural gas compressors.21
Forming a consortium with a local Chinese EPC firm to participate in a tendering process is another effective
strategy. Technip SA, the French engineering and construction company for example, formed a consortium with
China Offshore Oil Engineering Co (COOEC), a subsidy of China National Offshore Oil Corporation (CNOOC) in order
16
Bechtel, http://www.bechtel.com/projects/liwan-3-1-deepwater-gas-development/
Bechtel, http://www.bechtel.com/projects/cspc-nanhai-petrochemical-complex/
18
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/38019
https://www.iiicorp.com/?opportunities/opportunity/43748
https://www.iiicorp.com/?opportunities/opportunity/47419
https://www.iiicorp.com/?opportunities/opportunity/39263
https://www.iiicorp.com/?opportunities/opportunity/39314
https://www.iiicorp.com/?opportunities/opportunity/38659
19
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/43748
20
Chemtex, http://www.chemtex.com/en/media/news?news=120
21
TGE, Small to mid-scale LNG prosecution plants, company broacher
17
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to explore China’s growing offshore business opportunities. It was awarded a front end engineering design (FEED)
contract for two tension leg platforms (TLP) for the Liuhua offshore oilfield by the project owner CNOOC.22
IIICorp previously reported how the company’s shifted its procurement for offshore projects to its Shanghai
branch. This was undertaken with the aim of strengthening its relationship with CNOOC and COOEC.23 It was
awarded another contract by CNOOC for the Panyu offshore gas field by forming a 55/45 consortium with, as
IIICorp reported.24
Technology
Advanced technology has always been an important factor for foreign companies’ success in China. The case of
B&V-Chemtex team is a good demonstration of how advanced technologies was able to gain favor from Chinese
project owners. The Puguang natural gas plant operated by China Petrochemical Corporation (Sinopec) in Sichuan
province represents a good example. The gas field produces sour gas that contains hydrogen sulphide and carbon
dioxide in large volumes and B&V was able to use its advanced Inter-stage Cooling technology to reduce the
volume of inerts processed in the plant’s sulfur recovery unit (SRU) and therefore reduce costs. This large-scale
project produced more than 8% of the total natural gas output in China in its first year of operation. 25
Another example was provided in IIICorp’s coverage of the Diefu LNG terminal in Shenzhen city, owned by CNOOC.
The manager of CNOOC’s Shenzhen branch revealed that foreign companies are likely to be chosen for the project
because it requires a glass reinforced epoxy (GREW) piping system that foreign companies have a technological
advantage in.26
Private project owner
It is not typical for a Chinese project owner to specifically state that foreign EPC firms would be preferred over
local ones, however when this does occur it often involves a privately-owned company. One such example covered
by IIICorp involved a USD 300m LNG import terminal project being developed by Hong Kong-based China Gas
Holdings. The company would likely select a foreign EPC contractor because the major contractors in China’s
domestic LNG terminal market, namely CNOOC, Sinopec and China National Petroleum Corporation (CNPC), would
be unlikely to offer assistance because they are also competitors. As a result, according to the executive director of
the company, China gas will likely require a foreign EPC contractor to undertake the project.27
Natural gas (especially LNG) is the sector that private Chinese companies are the most active in, due to it having
been the first to be deregulated. For this reason a number of large private companies operate in this sector, such
as Guanghui Energy and ENN Energy besides the above mentioned China Gas.
Foreign EPC firms focusing on natural gas and LNG are more likely to find opportunities working for private project
owners. TGE, for example, has seen pretty extensive cooperation with private project owners in this sector,
including an LNG storage tank contract it undertook at the Zhoushan LNG terminal owned by ENN (Zhoushan) LNG
Co Ltd. Others include a 30,000m3 LNG storage tank project for Inner Mongolia Huineng Coal Chemical Co Ltd, a
50,000m3 LNG tank and a 1.5m Nm3/d LNG factory project by Guanghui Energy, and a 29,000m3 LNG storage and
22
Technip, http://www.technip.com/en/press/technip-awarded-feed-contract-liuhua-fields-south-china-sea
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/37927
24
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/36827
25
B&V, http://bv.com/Projects/Sinopec-group-puguang-natural-gas-plant
26
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/39215/EPC
27
IIICorp, https://www.iiicorp.com/?opportunities/opportunity/43721/EPC
23
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distribution system project by Jincheng Huagang Natural Gas Co Ltd. 28 Similarly, Technip has been able to
penetrate China’s growing mid-stream LNG market as with the contract awarded to it by privately-owned
Fengzhen Wanjie Gas Co Ltd. It will be providing engineering, procurement and technical assistance for a 1.3m
Nm3/d LNG train and a 0.3m Nm3/d compressed natural gas (CNG) station in Inner Mongolia. 29
State-owned project owners
Regardless of the above, large state-owned companies still dominate many industries which means that they have
more project opportunities to offer. They are also more resourceful in terms of relationship with authorities, which
is a crucial factor in China for activities such as project approval. As previous IIICorp statistics shows, the majority
of deals awarded to foreign EPC firms come from state-owned companies.
Foreign EPC companies can also collaborate with state-owned project owners as sub-contractor. Kellog Brown &
Root (KBR)was appointed sub-contractorby CNOOC to provide engineering, training and advisory services as well
as process optimization for its granulation and melt plans in Heilongjiang, Hainan and Inner Mongolia.30
Relevant regulation summary
Opinions on Promoting the Development of Overseas Contracted Projects ( 关于大力发展对外承包工程的意见)
7th April, 2000 – issued by the State Council General Office. This serves as in accordance with the ‘Going Out’
strategy aimed at encouraging Chinese companies to explore foreign market and develop business overseas. It
stated general incentive goals such as to establish large and competitive project contractors and creating financial
supportive policies for overseas contracted projects, such as loan support and insurance support.
4.2 Vision and Action on Promoting the Construction of Silk Road Economic Belt and 21 st Century Ocean Silk Road
(推动共建丝绸之路经济带和 21 世纪海上丝绸之路的愿景与行动)
March 2015 – jointly issued by National Development and Reform Commission, Ministry of Foreign Affairs and
MOFCOM. This is a supporting document for the ‘One Belt One Road’ strategy and laid out some of the key areas,
mostly on infrastructure construction, for future investment in and cooperation between countries along the area.
These key areas include:





Transportation infrastructure such as road, railway, port and airport
Energy infrastructure, such as oil and gas pipeline, power transmission facilities and their upgrading
Communication network and infrastructure, such as optical fiber cable, submarine communication cable
and satellite communication channel.
Exploration and extraction of traditional energy such as coal, oil, gas, metal and other mineral resources
Clean and renewable energy such as hydro, nuclear, solar and wind power
4.3 Several Opinions on Constructing New Open Economy Structure ( 关于构建开放型经济新体制的若干意见)
28
TGE, References for liquefied natural gas storage & terminals, company broacher
Technip, http://www.technip.com/en/press/technip-awarded-new-lng-plant-contract-china-building-its-strongexpertise-natural-gas-liquefa
30
Zheng Yu, ‘Finding the Real Buyer’, Financial Times, 31 Jul 2013. http://www.ft.com/cms/s/2/86f7820e-fa1711e2-b8ef-00144feabdc0.html?ft_site=falcon&desktop=true#axzz4DCmx6KEp
29
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5th May, 2015 – issued by the State Council. This document stresses the importance of constructing an open and
market-oriented economy, by both encouraging foreign companies to invest in China and Chinese companies to
invest abroad. It allows companies, both state owned and private, and individuals to take projects in overseas
countries under their own risks. It also encourages key industries to invest and take projects abroad, including
high-speed railway, nuclear power, aerospace, machinery, power generation and communication.
Guidance and Opinions on Promoting International Cooperation on Production Capacity and Equipment
Manufacturing (关于推进国际产能和装备制造合作的指导意见)
13th May, 2015 – issued by the State Council. This document encourages Chinese companies to conduct
international cooperation in manufacturing, by investment, trade or project contract. Specifically, it encourages
companies to develop new forms of project contract, including contract plus financing, contract plus financing and
operation, build-operate-transfer (BOT) and public-private partnership (PPP), besides the already developed EPC.
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Inside Industrial Infrastructure (IIICorp)
NEW YORK
747 Third Avenue 2nd floor
New York, NY 10017
Office: 646.722.2690
[email protected]
SHANGHAI
1505 Cross Towner, no.318
Fuzhou Road
Huangpu District
Shanghai, China 200001
+86 21 6391 2877
MUMBAI
405 VIP Plaza off Andheri New Link Road
Andheri West, Azad Nagar
Mumbai, India
+91 22 66756720
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Inside Industrial Infrastructure (IIICorp)
About ICORP
Inside Industrial Infrastructure Inc. (ICORP) was founded by Charlie Welsh, who has over two decades experience
in the global M&A, capital markets and business news and intelligence fields. ICORP’s commercial headquarters
were established in New York in July 2014, after two years of existence as part of The Mergermarket Group, which
Charlie co-founded. Its Shanghai-based subsidiary was registered in October 2014, closely followed by a Mumbaibased subsidiary in March 2015. Latin American and broader Southeast Asian coverage is currently being
expanded thereby providing companies and financiers with the only truly global emerging infrastructure
intelligence product.
For Corporate Customers
ICORP is a nimble, sector-focused intelligence provider that mimics the business development operations of most
companies operating in foreign markets by employing knowledgeable individuals from the markets they are in.
This local knowledge and access combined with the ability to identify intelligence that is actionable for businesses
in focused industry verticals provides today’s class of technology manufactures and providers with the insights they
need to enable the continued expansion of cross-border trade.
For Credit Investors
ICORP’s sourcing and intelligence platform identifies early and growth stage equity opportunities and delivers
direct access to unique regional- and sector-focused asset-based transaction flow,
before it hits the public tender.
For more information, please visit www.iiicorp.com
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