Floater Sector Beginning to Regain Traction -- With More Than 70 Projects Awaiting the Market Upturn Signal

April 15, 2017

Jim McCaul -- Orders for production floaters have finally begun to flow.  The break came early this year when contracts for a production semi for use in the GOM and an FPSO for use off Malaysia were awarded.  These contracts ended a dry spell of orders that extended over eighteen months.  Then within the past month contracts were awarded for an FPSO and TLP for use in SE Asia.  And over the next few months an FLNG for offshore East Africa and several FPSO contracts for Brazil will be awarded.    

We believe these orders are the precursor of a takeoff in deepwater activity over the next several years.   The question is how steep the takeoff trajectory will be.   There are many deepwater projects in the planning queue awaiting a market signal to justify an investment decision.   But the industry downturn over the past two years has eroded available liquid resources for investment new projects.  And quick return shale project investment is drawing oil company capital resources from deepwater projects.    

Several recent positive and negative developments will set the future pace of turnaround in the deepwater market:  

   Positive developments

  • likelihood that the November US election results will accelerate US deepwater E&D – the new industry-friendly administration is cutting environmental barriers, opening new areas to E&D and plans tax cuts to encourage domestic energy development
  • faster pace of rebound in oil company capital spending -- ExxonMobil, BP, Hess have increased their capex budget for E&D in 2017, reflecting a more bullish near-term outlook for capital spending than apparent last October  

  Negative developments

  • downturn in expected oil prices – while spot crude prices have increased due to the OPEC cuts, the futures market in April sees Brent crude for delivery five years out trading 10% lower than the projected prices last October
  • continued inability of Petrobras to regain traction following the corruption scandal – opposition to local content flexibility has delayed procurement of new FPSOs, legal challenges have prevented the sale of assets to improve cash position
  • monetary policy tightening and portfolio divestiture by central banks -- higher cost of capital favors investment in low capex shale projects that produce oil in months from project start vs. deepwater projects that require years of major capex outlay before returns begin

Overall, the net impact of these changes is slightly negative – but the outlook for a ramp up in production floater orders remains bullish.  We now anticipate orders for 32 FPSOs and 8 FPUs over the 2017/21 time period – 2 fewer units than the WER October 2016 forecast.  The reduction is the result of several FPSO orders being pushed beyond the five year forecast window.  Similar to our October forecast, we continue to anticipate orders for 25 LNG regasification floaters and around 25 FSOs over the next five years.  

There is certainly no shortage of prospective deepwater projects.   In the March WER report we identify 73 FPSO/FPU projects that have potential to move to the development stage through end-2021.   They are all announced discoveries capable of moving to the EPC contracting stage over the next five years – i.e., a physical backlog of potential project starts.  The projects are segmented into three time periods for possible investment decision – within the next 18 months, next 18 to 36 months and 36 to 60 months out.  

But timing of the EPC contracting decision depends on the underlying business drivers – and at $50-$55 oil only a portion (~55%) are expected to proceed to a FID over the next five years.  

All of the above is described in detail in the latest WER report.

  For more information, please contact Jim McCaul at imassoc@msn.com or

Jean Vertucci at vertucci@worldenergyreports.com
Report

FLOATING LIQUEFACTION AND REGASIFICATION
an Assessment of Future Requirements for FLNGs and FSRUs

Download Brochure

FLOATING LIQUEFACTION AND REGASIFICATION - An Assessment of Future Requirements for FLNGs and FSRUs

2019 Annual Outlook. Our new 150-page report is the first professional effort to systematically look at the universe of FLNG and FSRU projects in the planning stage – and categorize the likelihood of each making the development investment hurdle. Many FLNG and FSRU projects are planned – but only some will ultimately will move forward to development. The goal of our report is to objectively sort out likely winners and losers – and explain the rationale for the rating.
read more...

Floating Production News

Bumi Armada to Appeal Ruling in FPSO Case with Woodside

February 27, 2020

Malaysian FPSO leasing company Bumi Armada will appeal a recent court decision in…

Eni Boosts Agogo Field Reserves Estimate to Over 1 Billion Barrels

February 27, 2020

Italian oil company Eni has upgraded its resource estimate for the Agogo field offshore…

Keppel Breaks FPSO Conversion Record

February 26, 2020

Singapore's offshore facilities builder Keppel has said it has delivered "the world’s…
February 2020 Monthly Floating Production Systems Report

February 2020 Monthly Floating Production Systems Report

The coronavirus crisis has sharply cut oil demand in China, sending oil prices down more than 15% from the beginning of the year, threatening offshore capex plans. Meanwhile new production floater orders keep flowing. Modec booked a major FPSO contract at end-January, increasing its order backlog to a record eight FPSO contracts being simultaneously executed. The latest FPSO, destined for Equinor’s Bacalhau (formerly Carcará) field in Brazil…

Download

Energy News

Hempel Taps Lindström as COO

February 27, 2020

Katarina Lindström will join Hempel as Executive Vice President & Chief Operating Officer from August 1, 2020 as the coatings…

NYK Focuses on Ammonia as Marine Fuel

February 27, 2020

Japan-based shipping giant NYK has presented its concept for using ammonia as a marine fuel or zero-emission ships as part…

Blount Named CEO at BCCK

February 26, 2020

Midland, Texas-based engineering, procurement and construction (EPC) firm BCCK, Inc. said its founder, Clark Butts and its…