Are Russian producers able to provide domestic oil and gas companies with the necessary equipment in the near future?
Against the background of the US and EU sanctions imposed on Russia, a so-called "window of opportunity" opens up for Russian industrial businessmen, including manufacturers of oil and gas equipment. Despite the fact that over the past 15-20 years Russian oil and gas producers preferred to buy imported equipment, a number of domestic enterprises continued and continues to produce drilling rigs, valves, filters, pumping and compressor equipment and other products. Moreover, in many cases, one that, according to experts, competes on an equal footing with foreign counterparts. But consumers still, despite the existing sanctions, at every opportunity, prefer to contact foreign partners. A paradoxical situation is emerging - the products of Russian manufacturers are in demand and competitive abroad, but for some reason serious problems sometimes arise with sales within the country.
What do we have?
The most powerful cluster of oil and gas engineering and industrial science was formed in Russia back in the days of the USSR. By and large, it is precisely because of this that our country has become the largest producer and then exporter of oil and gas in the world. However, many of the existing domestic solutions were developed before the mid-1980s. Perestroika began, and the era of Soviet R&D ended.
In the 90s, mining companies gained access to free access to foreign markets and, as a result, they began to form powerful foreign exchange resources. Naturally, Russian oil and gas production turned its gaze to foreign producers. The switch to foreign equipment was largely facilitated by the arrival of world oil service giants, such as Schlumberger, Halliburton, Weatherford and Baker Hughes, on the Russian market, who preferred to work in Russian fields with familiar imported equipment (some of which are often produced by their subsidiaries). The flow of orders for equipment from Russian manufacturers gradually weakened, leaving most of them no funds for R&D and technological development. It should also be noted that in the 90s, many enterprises literally had to struggle to survive.
The result, as we can see, is obvious. According to the Ministry of Energy, imported equipment now accounts for up to 60 percent of the oil and gas equipment market. Today we have a situation that is close to critical. We can even talk about a fairly quick and complete loss of basic production and scientific and technical competencies by Russian science and industry, and as a result, the loss of entire sectors of oil and gas engineering (drilling rigs are actively imported from China, pumps from Great Britain, Switzerland and Italy, compressors from the USA and Germany, electric motors from Japan, Germany and Italy).
In fairness, it should be noted that a number of technologies in Russia did not receive appropriate development due to various objective reasons. So, until recently, technologies for the extraction of hard-to-recover oil and gas reserves, oil and gas production on the sea shelf were simply not in demand in our country, and the technology for liquefying natural gas was not widely used. In addition, for a number of reasons, there has been a noticeable lag in the field of applied software. It is in these areas that the issues of import substitution are most acute, and their overcoming will require a lot of efforts from all.
The higher echelons of power understand this. Therefore, now, in the context of a possible tightening of sectoral sanctions, it is necessary to urgently pursue a policy of import substitution. The head of the Ministry of Industry and Trade Denis Manturov recently announced that in connection with the departure of Western service companies and manufacturers of oil and gas equipment, it is necessary to ensure the replacement of imports with a domestic product at an accelerated pace.
According to the plan developed by the Ministry of Energy, by 2020 Russia should reduce the share of imports in the oil and gas complex from 60 to at least 43 percent.
In the medium term until 2018, the priority areas of import substitution include the creation and production of catalysts for oil refineries and petrochemicals, compressors for liquefying natural gas, high-power gas turbines and pumping and compressor equipment. Work will also be carried out on the creation of software for drilling and production of hydrocarbons, the development of hard-to-recover reserves. And in the longer term (until 2020) it will be possible to even more "get rid" of expensive foreign products.
The operation of foreign equipment in Russia has always been not devoid of a number of peculiarities, but, in truth, problems. First, the imported equipment itself has always been many times more expensive, and today, due to the weakening of the ruble against the dollar and the euro, this factor is beginning to play a decisive role. Secondly, if repairs are required, then spare parts will cost completely different money than, say, a year or two ago. And, finally, very often maintenance and repair work requires the presence of foreign specialists. It takes time to call them and arrive at the place, but what if it doesn’t wait?
Despite this, Russian customers are still moving very slowly towards domestic suppliers. Their approach, as a rule, is this: let the machine builders develop the equipment we need on their own, and we will place orders for new developments after all the necessary tests and several years of trial operation. At the same time, global experience shows that customers and contractors can and should only work together in the form of technological or even strategic alliances to work on the creation of a new product line. So it turns out to be faster and more profitable for both parties.
At the same time, it is important to note that a significant part of the nomenclature necessary for the oil and gas complex is already produced (and not bad!) In Russia or can be quickly mastered by domestic machine builders in cooperation with consumers.
Who will take it?
The market for equipment for oil and gas production and processing remains almost the only one in Russia that will grow in the near future - according to the forecast of the Ministry of Industry and Trade, Russian oil and gas companies will increase costs under this item by 31 percent in the next three years - to $ 19.1 billion. The only question is - how much of this money will the Russian suppliers get?
Meanwhile, analysts from Deloitte came to an interesting conclusion, which published the following estimates at the end of 2014: Russian technologies and equipment in those segments where they are not yet represented."
Despite such assessments and the dominance of imported products on the Russian oil and gas equipment market, there are a number of large Russian companies today that have managed not only to maintain, but also to strengthen their market positions. First of all, these are OJSC United Machine-Building Plants (OMZ Group, part of Gazprombank Group), HMS Group (Hydraulic Machines and Systems) and Rimera Group of Companies (oilfield service division of ChTPZ) - large holdings with serious scientific and technical potential and production facilities. At the same time, along with the market leaders, in Russia there are also over a hundred relatively large and medium-sized companies - manufacturers of a wide variety of equipment in demand in the oil and gas industry.
OMZ Group (United Machine Building Plants):
Main production assets: OJSC Uralmashzavod, OJSC Izhorskiye Zavody; Uralkhimmmash, Glazovsky Plant Himmash LLC, Skoda JS a.s. (Czech);
Manufactured products: onshore and offshore drilling rigs, tank, column, reactor, separation and heat exchange equipment;
HMS Group ("Hydraulic machines and systems"):
Main production assets: JSC HMS Livgidromash, JSC HMS Neftemash, JSC Nasosenergomash, JSC Kazankompressomash, Apollo Gossnitz Gmbh (Germany);
Manufactured products: pumps and pumping stations for main oil transportation, pumping systems for oil refining, compressors and compressor units, modular oilfield equipment, equipment for repair and cementing of wells, capacitive and separation equipment, systems for measuring the flow rate of oil wells;
Rimera Group of Companies:
Main production assets: JSC Izhneftemash, JSC Alnas, JSC Pipeline Connecting Bends, MSA a.s. (Czech);
Manufactured products: submersible pumps for oil production (ESP), mud pumps, pipeline fittings, pipe bends, equipment for repair and cementing of wells;
By and large, this triumvirate, whose nomenclature does not compete, but rather complements each other, by 2/3 "covers" the needs of oil and gas workers in technological equipment, not yielding to foreigners either in product quality or in the level of after-sales service. Figures and facts testify to the competitiveness of these manufacturers. Their products are in demand in foreign markets - in the order book of the pumping division of the HMS Group, more than 30 percent are exported to non-CIS countries, and Izhneftemash, a member of the Rimera Group of Companies, in some periods receives more than 40 percent of its revenue from exports.
What to do?
There are several ways to promote the development of the domestic market and its saturation with Russian machine-building products.
At a recent meeting of the Interdepartmental Working Group, the head of the Ministry of Industry and Trade Denis Manturov said that the state was ready to issue loans for key investment projects with a preferential credit rate of 5% per annum. The money will go from the Industrial Development Fund, and the interest rate on loans taken in the period from 2014 to 2016 for research investment projects and R&D will be subsidized. The state is ready to compensate the costs for the implementation of pilot projects in the field of engineering and industrial design.
The Industrial Development Fund has already received more than 35 applications from oil and gas equipment manufacturers. Among the enterprises that have applied for concessional financing are manufacturers of electric-welded pipes, pumping equipment, telemetry drilling systems, etc. The total amount of projects on applications reaches almost 10 billion rubles. In addition, investment projects for the creation of new products for the needs of the fuel and energy complex with a total amount of funding of about 40 billion rubles were sent to the Ministry of Industry and Trade for consideration.
In general, the largest domestic manufacturers could develop independently, without resorting to emergency measures of state support, but a prerequisite for this should be the desire of Russian oil and gas companies to purchase primarily domestic equipment, their readiness for close cooperation with Russian machine builders in the development and mastering the production of new types of equipment and technological solutions. Alliances of consumers and producers are the best world practice, which at one time became the basis for the development of all the largest transnational oilfield service holdings, but which, unfortunately, is still not taking root well in our country.
Localization of equipment production in Russia is among the priority areas of work on import substitution, which is being carried out by the Ministry of Industry and Trade today. Leading mechanical engineering companies, as you would expect, set the tone for the rest of the manufacturers here. OMZ Group is getting ready to develop a subsea production facility for offshore oil and gas production, and to expand the range of heat-exchange and column equipment produced for refineries. Rimera Group of Companies has mastered and supplied the customer with Voskhod welding complexes, which have come to replace European-made installations that have exhausted their service life. The Group also plans to develop oil well cementing units (at the moment, almost all such units are manufactured in the USA), as well as to expand the range of pumps for oil production at the Alnas plant in Almetyevsk.
In 2014, HMS Group began construction in the Oryol Region at the site of HMS Livgidromash JSC, a unique production complex for Russia, which includes a full cycle of production of mainline pumps for the transport of oil and oil products, processing pumps for oil refining, and pumps for nuclear and thermal energy. The first stage of construction will be completed this fall, the second is planned by the end of 2016. According to the HMS Group itself, "the volume of investments in the project will amount to 2.5 billion rubles, and the volume of sales of the company's products in Livny will grow by 5 billion rubles, or more than 2.5 times by 2017."
Perhaps the solution to the problem of import substitution lies in the political plane. Many experts say that more powers should be given to government representatives on the boards of directors of state-owned companies. Often, the issues of the formation of investment programs, the purchase of equipment and other issues of the operating activities of controlled companies are outside their field of vision. If, however, the scope of powers of state representatives in state-owned companies is expanded simultaneously with an increase in their responsibility for the volume of purchases from domestic manufacturers, then, perhaps, Russian equipment could increasingly replace expensive imported equipment.
This can become a significant step for the development of the entire industry - it is the state-owned companies that are the largest customers of equipment and it is they who are slower than others to implement import substitution. Thus, according to a recently published study by the Gaidar Institute, in the first quarter of 2015, only 10% of state-owned enterprises announced a reduction in purchases of imported equipment, against more than 50% reduction in imports among private companies.
What is the bottom line?
Speaking about the problem of import substitution, it is necessary to remember that the oil and gas industry is key for the country, and the issues of creating domestic equipment that ensure the operation of this industry are issues that are today at the intersection of business interests and the economic security of the state.
With all the support provided by the state to the oil and gas engineering industry, there is a need for domestic demand from the main oil and gas companies. Without orders from our oil and gas workers, their own industry runs the risk of becoming almost completely dependent on foreign equipment, its manufacturers and the governments of those countries from where it comes to us. And the Russian industry will never get new opportunities for its further development.
If we abstract from the “political” context of this topic, then the issue of switching to modern Russian equipment with high-quality service is one of the key aspects of the sustainability of the business of the oil and gas producing and refining companies themselves.
In the meantime, according to the plans of the Ministry of Energy, by 2016 it is planned to master technologies and start producing equipment, including for geological exploration, downhole equipment, as well as equipment for controlling drilling devices. By 2018, the development of technologies for the production of catalysts and additives, the processing of hydrocarbon raw materials, the production of equipment for the transportation of oil and gas and the liquefaction of natural gas, as well as the preparation of software should have already begun.
Within the framework of long-term plans for 2018 and beyond, it is worth creating our own technologies and equipment for offshore projects.
Leading Russian manufacturers of oil and gas equipment are quite capable and, moreover, should actively participate in these processes, competing with foreign manufacturers on equal terms. There would only be orders and the will of today's oil and gas industry commanders in practice, and not only in words to face the Russian supplier, but we have high-quality Russian products.
