EMA forecasts low activity for floating production industry

Offshore staff

SINGAPORE – In its “2016-2020 Floating Production Systems Outlook Report,” Energy Maritime Associates (EMA) accounts for 17 contract awards in 2015 and predicts 82-157 FPS units will be built over the next five years.

The 17 contracts are valued at more than $7 billion and consisted of four FPSOs, six FSOs, three FSRUs, one FLNG, two MOPUs, and one production semi. This is down 45% from the 30 units awarded in 2014.

The four FPSO orders is the lowest level going back more than 20 years, according to EMA. All awards were made in 1Q, before oil prices fell even further.

Six orders were placed for LNG-related units: three FSRUs, two LNG FSOs, and one FLNG. This is the first time that more LNG-related units have been ordered than FPSOs.

Twenty-six units are idle without contracts: 16 FPSOs, six production semis, three FSOs, and one MOPU. Many of these units will eventually be scrapped, while a few may be redeployed as early production systems, or on short- to medium-term contracts on marginal fields.

Looking ahead, EMA predicts as many as 157 orders could be placed in the next five years at a capex $134.7 billion. The most likely forecast is 115 orders costing $92.9 billion. Due to the expectations of continued lower oil prices, the analyst adjusted its forecast scenarios downward, with last year’s low case becoming this year’s most likely case.

However, given the continued demand for LNG related projects, EMA increased the number of FLNG and FSRU orders, which are expected to account for one-third of the capex over the next five years. FPSOs will still be the largest category with almost 40% of the expected orders and more than 50% of the capex. $20 billion worth of units are expected for each of Africa and Australia. Brazil falls to the third spot ($17.5 billion), following spending cuts by Petrobras. Projects in Southeast Asia should receive $11 billion worth of orders for FPSOs, FSOs, FLNGs, and TLPs. Major new awards are expected toward the end of the decade on both sides of the Gulf of Mexico as well as the North Sea.

Looking specifically at Petrobras, the company cut its growth plans and did not award any FPSO contracts in 2015. However, it is now back in the market for two FPSOs (Libra Pilot and Sepia). If reforms continue in Brazil and Petrobras farms out some developments, two-three FPSOs could be awarded annually. However, if this does not take place, Petrobras will struggle to finance new orders.

Respondents were quite gloomy in EMA’s annual floating production industry survey, with almost half feeling pessimistic about the outlook for the coming year. More than 70% reported low levels of contract execution activity in 2015, with similar expectations for 2016. The vast majority of respondents to the survey felt this downturn would last at least two more years, with only 19% believing it would end in 2016.

EMA’s Managing Director David Boggs said: “2015 was the worst year for the floating production industry since 2009. 2016 will likely be just as bad, with final investment decisions continuing to be delayed. In 2015, there were large layoffs and restructurings, but we did not see a great deal of M&A and asset sales. This is likely to change in 2016 when some yards and contractors are faced with empty orderbooks and bleak prospects for the next 12-18 months. Few, if any, major awards will be made in the first half of 2016, but, there are a number of large developments in FEED that could be sanctioned by the end of 2016.

“Fundamental reforms including standardized designs and closer collaboration will reduce the costs for offshore hydrocarbon developments and result in new orders for floating production systems. We are currently tracking 241 projects in the planning pipeline. Awards for LNG-related units should continue to grow and this will only increase once the first FLNG unit begins operation later this year.”


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