Royal Dutch
Shell has said it will deploy more Chinese equipment at its
struggling US shale business – becoming the latest natural resources company to
try to reduce costs by switching to cheaper Asian suppliers, according to a
report published in "Financial Times”.
Miners such as Rio Tinto and Antofagasta have already been encouraged by improvements in the reliability of Chinese machinery, which they say can now be integrated into their existing operations without compromising efficiency or safety standards. But, as the FT notes, the oil company’s shift to lower-cost Chinese manufacturers underscores the potential threat to western industrial equipment makers, such as Caterpillar and Joy Global from their competitors in emerging markets.
Shell’s move comes as oil and mining companies – which ramped up capital expenditure in recent years amid a huge commodities boom – are being pressed by shareholders to curb spending and improve returns. In an interview in The Hague, Shell’s chief executive Ben van Beurden explained that the Anglo-Dutch major was sourcing more and more equipment for its North American business – which made a loss last year – from low-cost countries such as China. "Why do we have to make our tanks in the US or Mexico?” he said. "I can make my tanks in China and guess what? We take 40 per cent of the cost out.” He said the shift was part of "Project Mosaic”, a strategy designed to cut costs in its US business by using more standardised and modular equipment and "cutting out all the bespoke”.
Mr van Beurden, who took the reins at Shell in January, said one of his biggest challenges was to turn around the company’s North American shale business. The company holds about $24bn in US and Canadian shale assets but has yet to make much money from them: indeed its Upstream Americas unit made a loss last year. It has put a number of its shale properties on the block and last year took a $2.1bn impairment on its US shale portfolio.
