FAVERSHAM, UK – The 2Q edition of Douglas-Westwood’s “World Floating Production Market Report 2016-2020” forecasts that capex for FPS units will total $58 billion over the period to 2020.
Latin America is expected to dominate spend, accounting for 35% of this capex, mostly from Brazil.
The value of the order book remains near record levels but this is diminishing, with projects such as TEN offshore Ghana and Stones in the Gulf of Mexico entering the final commissioning stage over the last quarter.
There remains a wave of projects, ordered over the previous cycle that are not due to be installed until 2017 and 2018. Many of these have seen installation dates slip, with delivery on time (and budget) clearly still an issue for the industry. The looming challenge for the supply chain, and particularly shipyards, is the lack of new orders after these units come onstream.
Last year DW identified only four new FPS vessel contracts with a combined value of $3 billion.
While there have been no orders to date in 2016, the analyst has revised its order forecast for the year due to some unexpected units now anticipated to be ordered in 3Q. The largest of these is an FPSO for the Petrobras-operated Libra field. This will be the first ordered by Petrobras in two years and is expected to be the highest capex unit ordered this year.
DW says it appears the industry has reached the reached the bottom of the down cycle and operators are adjusting to the low oil price and will begin to order again in the second half of the year.
The analyst now expects an improved order value of $4.2 billion this year, from a higher number of orders than in 2015. There was limited commissioning in 2015 and as a result the value of units under construction declined only $3 billion, from $54 billion to $51 billion in the last year.
In 2016, high-capex vessels such as the Goliat FPSO offshore Norway have started production and as a result the current order book value is $47 billion. By the end of the year this is expected to decline to $46 billion, including the expected new orders.
Operators are pushing both cost reduction measures and complete re-engineering of projects. Two key examples are the FPSS for the Mad Dog Phase 2 project (which should be ordered this year) and the Johan Castberg FPSO. Both fields had development plans that were uneconomic when the oil price was $110. However, due to cost decreases and revised development plans are now economic at a low price – showing that operators are willing to adjust and work at the new price norm.
The current downturn represents an opportunity for the industry to move toward a more standardized approach to FPS engineering, which has been debated for many years, without significant progress. The analyst says it expects a leaner, more efficient FPS industry to emerge from this downturn.