Video #28: Singapore Oil Rig Building
Monday, June 05, 2006BACKGROUND INFORMATION
In 2005, as a result of the effects of hurricanes, politics in the Middle East, and fears that the worldwide production of oil may have reached its peak, oil prices jumped to a record high of $70.85 a barrel. The persistence of high energy prices has helped many companies involved in exploration for new oil and natural gas supplies.
Among these are two Singapore corporations: Keppel and Sembcorp Marine Ltd.
Both have long been two of the best known names in global oil rig production,
accounting for roughly 80% of the global market for offshore oil rigs. Both
of those companies started out as shipyards. After switching to building oil
rigs, they suffered when energy prices collapsed during the 1980s. But they
managed to survive even after their American and European competitors went out
of business. Realizing that the
market for oil rig building and repairs would eventually rebound, the Singapore
government (which owns a stake in both companies) continued to fund the two
firms’ activities—and the bet paid off. Their orders went through
the roof over the past few years, totaling over $7.6 billion (US) in 2005.
Despite their recent good fortune, both companies are prepared to deal with problems that might arise if oil prices drop. Even if the need for new oil rigs begins to decrease, an increase in the demand for rig refurbishment, upgrade, and repair is expected-- as old rigs need to be brought up to current standards and existing rigs need to modified in order to function in deep water areas. As evidence of the strong market for refurbished equipment, Keppel’s marine unit director, Choo Chiau Beng, notes that the average age of jack-up rigs now in use is 22 years. He says they were “designed for only 20 years”.
Additionally, both companies also have extensive investments in other shipyards and energy-related activities around the world. Although Singapore lacks large amounts of oil and gas resources, the two firms have begun to find and create their own petroleum sources in nearby countries such as Brazil, West Africa, Vietnam and Cambodia. Sembcorp is Singapore’s first importer and retailer of natural gas. It also owns and operates various steam and electric power plants across Asia and in Perth, Australia.
A long-term threat to Keppel and Sembcorp is the potential of competition from neighboring Malaysia, which is considering entering into marine engineering and construction through companies like M3nergy, one of the larger corporations in the field.
SOURCES
“High Oil Prices Signal Opportunities for Singapore” Jones Day Commentary. February 2006. http://www.jonesday.com/pubs/pubs_detail.aspx?pubID=S3117
“Singapore Yards Reaping Benefits of Investments” Oil and Gas Journal.
March 19th, 2006.
http://ogj.pennnet.com/articles/article_display.cfm?Section=ONART&C=TOPST&ARTICLE_ID=250602&p=9
“Sembcorp Industries” Sembcorp Industries.
http://www.sembcorp.com.sg/index.htm
“M3nergy” M3nergy
http://www.m3nergy.com/
“Oil prices easier in Asian trade as Iran concerns cool, Singapore oil
rig makers start strong in 2006” The Financial Express. March 8th, 2006
http://www.financialexpress-bd.com/index3.asp?cnd=3/8/2006§ion_id=24&newsid=17958&spcl=no
“Singapore rig-builders seen riding oil rally” Daily Times –
Pakistan. March 29th, 2005
http://dailytimes.com.pk/default.asp?page=story_29-3-2005_pg5_15
“Offshore Oil Rigs: Jacking up” The Economist Magazine Online. November 17th 2005. http://www.economist.com/displayStory.cfm?story_id=5178980
LESSON PLAN
GRADE LEVEL/SUBJECT:
10-12 grade Economics, International Relations, World History, Geography, International
Baccalaureate Programs (IB), Current Events.
PURPOSE:
To present activities to be used in a variety of classroom situations in order
to enhance student understanding of the Asian economy and its significance globally.
MATERIALS:
1. Background information provided.
2. Resources on Japan available at your school’s Media Center and the
Public Library System in your area.
3. Background information available through Internet “search engines.”
OBJECTIVES
Students will be able to:
1. Understand the role of Asia in world energy production and consumption.
2. Start to develop connections between the effects of energy demand and prices
on global industries.
3. See the need for contingency planning in case of changing market conditions.
ACTIVITIES:
May be assigned as group activities or as individual tasks. They may also be
designed as preparation for related presentations either by individuals or groups.
1. Research and report on the history of oil rig technology and what offshore
oil and natural gas production means in terms of world energy supplies.
2. Look at the increasing energy demands of various Asian countries, as well
as energy production in Asia. See whether Asian energy production is keeping
up with the demand. Come up with possible energy solutions for countries that
are unable to meet their domestic needs.
3 Have the students discuss what industries might be affected positively by
rising energy prices and create strategies on how investors can take advantage
of this trend. (In particular, look for Asian companies that could become “winners”
from rising energy prices).
EVALUATION:
Individual assignments should be graded by the teacher using established criteria.
Group activities, presentations and projects may be evaluated by teachers and
students using the following criteria and scale:
Content 1 = Superior (A)
Creativity 2 = Excellent (B)
Clarity 3 = Good (C)
4 = Fair (D)
5 = Poor (F)
