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10 Maritime Reporter & Engineering News • FEBRUARY 2014 OFFSHORE UPDATE Floating Production $136B Expenditures Forecast for Floating Production Unit Purchases Over the Next Five Years Today, 319 oil/gas fl oating produc- tion units are now in service, on order or available for reuse on another fi eld. FPSOs account for 65% of the existing systems, 74% of systems on order. Another 25 fl oating LNG process- ing systems are in service or on order. Liquefaction fl oaters account for 12%, regasifi cation fl oaters 88%. No lique- faction fl oaters are yet in service – all three are on order. In addition, 101 fl oating storage units are in service, on order or available. Available FPSOs The number of production units off fi eld and available for redeployment continues to grow. There are now 19 FPSOs, 4 production semis and 1 spar idle. The latest to join the inventory of idle units is the Perintis, a 640,000 bbl FPSO with 35 kb/d processing capabil- ity that had operated offshore Malaysia since 1999. Redeploying many these idle units will be diffi cult. A large portion of the in- ventory is comprised of FPSOs convert- ed from old, single hull tankers. Eleven of the idle FPSOs are single hull, 7 of which were built more than 30 years ago. They will be diffi cult to place. Then there is the need to fi nd a suit- able match between the fi eld require- ment and the unit. Not so easy to do this. Typically the redeployment con- tract involves modifi cation of the pro- cess plant and mooring system, plus general upgrade to the entire unit. The more different the new fi eld, the higher the modifi cation cost. At some point it makes sense to use a new hull or fi nd a suitable tanker to use for conversion. But more general, given the historical rate of redeployments, there are simply too many idle units to be fully absorbed. The historical ordering pattern of FP- SOs illustrates the ability to absorb idle units. Over the past ten years there have been orders for 136 FPSOs. Of the total, 82% of the orders (112 units) have been fi rst time FPSOs. They were constructed or converted for the project – and did not previously operate as production units. Only 18% of the orders (24 units) were redeployments of existing FPSOs to a new fi eld. In effect, it took ten years to redeploy 24 idle FPSOs. At this pace, it will take 8+ years to redeploy the cur- rent idle inventory of FPSOs – assum- ing no additional FSPOs come off fi eld (which of course will happen). The large, growing inventory of idle production fl oaters is a warning to leas- ing contractors and lenders to be con- servative on residual values in FPSO bids and fi nancings. Anything more than scrap value is likely optimistic, even for FPSOs built on new or young hulls. Production Floater Orders The market seemed to hit resistance in 2013 – and resistance has continued into 2014. FPSO orders in particular have been relatively weak. Over the past ten years an average of 13 to 14 FPSOs have been ordered annually. Only 11 FPSO contracts were placed in 2013 and no orders for FPSOs were placed in the fi rst month of 2014. Details for production fl oater orders in 2013/14 are available at www.imastud- ies.com. Resistance seems to be in the supply chain. Construction costs have been increasing, local content targets have been creating bottlenecks and access to fi nancing has been constrained. Oil company investment resources also have been shifting to shale oil and gas project development. We see supply chain resistance and competition for investment resources from shale/tight oil projects continuing over the near to midterm. Backlog of Planned Floater Projects 242 fl oating production projects are in various stages of planning as of begin- ning February. Of these, 54% involve an FPSO, 17% another type oil/gas production fl oater, 24% liquefaction or regasifi cation fl oater and 5% storage/ offl oading fl oater. Brazil and Africa are the major loca- tions of fl oating production projects in the visible planning stage. We are track- ing 49 projects in Brazil, 50 projects in Africa – 41% of the visible planned fl oating production projects worldwide. Brazil clearly leads in terms of future production fl oater requirements – as several Brazilian projects will require multiple production units. When these large projects are taken into account, Brazil represents almost 30% of vis- ible fl oating production system orders in the planning stage. There is a cau- tion here. Should Brazil (or Petrobras) have a severe economic downturn, the market for production fl oaters will take a serious hit. The large backlog of planned projects is an indication that the recent slow- down in orders is not attributable to lack of demand. There are plenty of deepwater projects at or near the fi nal investment stage. Supply chain issues and better investment opportunities are causing the FID to be deferred. Five Year Outlook for Orders We have just completed a detailed forecast of additional production fl oater requirements over the next fi ve years. In the most likely market scenario, we forecast orders for 101 oil/gas produc- tion fl oaters, 25 LNG processing fl oat- ers and 35 FSOs between 2014 and 2018. Capex associated with these orders is expected to be around $136 billion. FPSO acquisitions will account for 67% of the capex, other oil/gas FPSs 14%, FLNGs 13%, FSRUs 4% and FSOs 2%. Our new forecast is signifi cantly lower than the forecast made in early 2013. Over the past year it has become clear that supply chain issues and other con- straints are much stronger than previ- ously thought. Deepwater project start opportunities keep growing – evidenced by the growing backlog of projects in the planning stage. But capability limi- tations in the supply chain, increasing project complexity, escalating costs, access to fi nancing and bottlenecks cre- ated by local content targets appear to be worsening. These factors have been constraining – and will continue to con- strain – deepwater project starts. Another reason for the drop is the growing diversion of available invest- ment resources to shale oil/gas projects. Alternative opportunities to invest in shale oil/gas development are eroding oil company investment in deepwater development. We see the diversion of resources becoming greater over the next several years. BY JIM MCCAUL, IMA The Author IMA provides market analysis and stra- tegic planning advice in the marine and offshore sectors. Over 40 years we have performed more than 350 business consulting assignments for 170+ clients in 40+ countries. We have assisted nu- merous shipbuilders, ship repair yards and manufacturers in forming a a plan of action to penetrate the offshore mar- ket. Our assignments have included advice on acquiring an FPSO contrac- tor, forming an alliance to bid for large FPSO contracts, satisfying local content requirements and targeting unmet re- quirements through technology develop- ment. Tel: 1 202 333 8501 e: imaassoc@msn.com www.imastudies.com Planned Projects Type of Production System Required (As of February 1, 2014) Type of No. of Required Projects FPSO 131 Other FPS 40 FLNG 31 FSRU 27 FSO 13 Total 242 MR #2 (10-17).indd 10 2/4/2014 9:30:23 AM
