Subsea vessel market seen moving against oil-price tide

The global subsea vessel market will defy the plummeting oil price and grow every year from 2016 through to 2020, energy consultancy Douglas-Westwood has predicted.

Douglas-Westwood believes the FPSO market will peak in 2017 (Image credit: Edersguerri / Wikimedia Commons)

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Inspection, repair and maintenance will account for about 30% of the $97.7 billion spent in the next five years as operators focus on squeezing the most out of producing assets, research analyst Celia Hayes said at a presentation in London organized by the Society for Underwater Technology.

“The operators want to ensure longevity of their current assets. They want to keep their equipment up to date, and they want to maintain – if not increase – production in the wells they already have,” she said.

Asia will be a key driver of growth with $18.3 billion of expenditure over the forecast period, and in Africa spending will be driven by development of large offshore fields. In the UK, Douglas- Westwood expects demand to increase on the back of large projects that have been sanctioned – such as Enquest’s Kraken and Chevron’s Rosebank developments.

Kraken is on track to produce first oil in the first half of 2017 on $2.8 billion of capital expenditure, Enquest said in its latest update. Kraken’s floating production, storage and offloading vessel (FPSO) is on track for delivery in 2016. Rosebank’s future is less certain, as it is one of several large projects Chevron has earmarked for deferral.

Climbing the tree

The market for subsea trees – seen by Douglas-Westwood as a key indicator of the size of subsea projects – will stagnate for three years before recovering from 2019 onwards, according to Hayes’ colleague Iva Brkic.

Subsea tree installations peaked in 2014, a “reflection of record orders in 2013,” Brkic said. Demand remained strong in 2015 due to a healthy backlog, leaving 2016 to take the biggest hit from the struggling oil market.

The backlog is further demonstrated by data from five key manufacturers of subsea hardware: Aker Solutions, Cameron, FMC, GE Oil & Gas, and Dril-Quip. After a quiet final nine months of 2012, orders for subsea trees spiked in the first quarter of 2013 and remained unusually high in the second quarter before entering a slowdown. Notably, the majors saw one more jump in orders in the second quarter of 2014, just before the benchmark oil price began its precipitous fall. The backlog of subsea activity was still higher in dollar terms in the second quarter of 2015 – the most recent month for which the data has been published – than at any time from 2008 to 2012.

“The players are very quickly working through those backlogs, and are already facing challenges,” Brkic commented, “which is then driving toward consolidation in the market – which we have already started to experience.”

In the FPSO market, the consultancy believes activity will peak in 2017 as sanctioned projects go forward – but with delays. Global capex on floating production systems is forecast to reach $69 billion in 2015-2019, although the researchers noted that greater cost-efficiency toward the end of that period would reduce capex per project.

With shallow-water opportunities dwindling, Douglas-Westwood expects projects in waters deeper than 1000m to command 38% of global subsea hardware capex in 2016-2020, compared to 30% in 2011-15. Projects at depths of 250m or less will see their share of capex fall from 50% to 42%, while projects at 250-999m depth will continue to account for roughly one-fifth of spending.

Transferable skills

Douglas-Westwood expects the oil market to return to equilibrium in late 2016 and the number of global offshore wells in development to rise slowly through the second half of the decade from its 2015 trough.

At least 15% of employees in the UK’s offshore oil and gas sector have lost their jobs since January 2014, according to industry trade body Oil & Gas UK. With an eventual recovery likely a few years away, Hayes recommended North Sea services firms look to wind to maintain cash flow.

More than 11,600 turbines will be installed globally in the next decade, according to Douglas-Westwood’s figures. China, Germany and the UK will account for about 54% of installations, with more than 1,600 turbines to be installed in British waters.

“There’s a lot of transferability of skills, particularly for installation in the North Sea, which the offshore wind industry has struggled with at times,” Hayes said, listing foundation installation and pile-driving as a couple of areas in which oil and gas services firms could provide expertise.

By Nadav Shemer