On July 16th, Obama Administration announced new sanctions against firms in Russia’s energy, financial, and defense sectors in response to Russia’s continued support for Ukrainian separatists.

The sanctions against Russia may open a long-awaited door for China to sweep into Russian oil and gas field.

“Almost overnight, Russian oil and gas giants such as Gazprom, Rosneft and Surgut begin to actively communicate with us, which is unbelievable before” said Jereh group (SZ 002353), a Chinese oil & gas equipment and engineering services company, “Well drlling, completion sectors remain momentum, meanwhile, the need for well intervention and stimulation is unexpectedly booming.”

Challenges loom for U.S. Oilfield Service Companies

“It is likely that American economic sanctions against Russia directly cause the changes of global O&G market,” said Forest Wang, V.P. of Jereh.

Since Ukrainian crisis, U.S. has announced three economic sanctions against Russia, including the one against the CEO of Rosneft Igor Sechin, an ally of President Putin. Considering all that, it is predicted that U.S. companies such as NOV and Halliburton, which has many big lucrative Russian contracts, may be affected, even banned to export to the market.

So Russia shifts its focus on new players in order to speed up its E&P of the $8.2 trillion valued oil and gas reserves.

According to EIA In 2013, Russia produces around 10 million barrels of crude oil a day, taking oil reserves to the world highest. To keep it, a large amount of high end equipment and technology for its shale oil exploitation in West Siberia is required, which will lead to the double increase of its total hydraulic fracturing horsepower by the end of 2018.

Compared to US players, Chinese companies can offers the same services with significantly lower cost, which is much attractive. “Even Shell has declared its preference to use more Chinese equipments for American shale gas exploration to lower the production costs.”

Sino-Russian Harmonious Bilateral Relations Benefit Chinese Players

On May 21st, president Xi Jinping and Putin witnessed the signing of $400 billion natural gas deal between CNPC and Gazprom. Though specific terms are still under wraps, there seems be equipment, construction and engineering services supplying from Chinese companies, recognizing the strong competitiveness of China players.

Jereh group (SZ 002353), a Chinese oil & gas equipment and engineering services company, also the world’s largest oilfield completion and second coiled tubing manufacturer, launched its Apollo 4500 hhp turbine frac pumper in this March, whose debut not only makes China the third country that has built turbine fracturing equipment after the U.S. and Russia, but also sets a world record of one single frac pumper’s highest output power, 4500 hhp.

“In fact, Chinese companies are keeping in line with the world technology development. In the oilfield equipment manufacturing sector, we actually have achieved world highest level, which can reliably replace U.S. companies in Russian market.” said Forest Wang. “More than 100 sets of Jereh equipment work in Russia, Kazakhstan and other CIS countries. And all are customized to cater for its operation requirements, such as under minus 40 degrees.”

As the second-largest hydraulic fracturing country after the United States, the total pressure of plunger pumps in China is up to around 3.1 million horsepower, of which Jereh and SJ, each takes a share of nearly 45% of the frac unit.

With the surging emphasis on global market, Chinese companies like Jereh will reshape Russia O&G market.

The material is provided by Yantai Jereh Oilfield Services Group