Cheap oil is hurting business case for subsea factories

Leading experts from Shell, Statoil and Total have warned that equipment suppliers must focus on cost reductions for subsea factories as the low oil price has weakened the business case for moving processing to the sea bed.

Image credit: Oyvind Hagen/ Statoil

Vendors will need to price their equipment and systems more attractively for subsea factories ever to be the norm, the operators said, and they insisted that enhanced recovery would now be trumped by capex reduction in subsea field development decisions.

The consensus was reached at a lively panel discussion at Upstream Intelligence’s Subsea Processing and Flow Assurance Conference in Houston in May.

Khalid Mateen, Vice President of Engineering and Technology for Total E&P Research and Technology, led the charge by suggesting that the sustained period of rising oil prices had made the whole subsea industry complacent and wasteful.

“This industry was waiting for a correction,” Mateen said.

“Hundred-dollar oil had introduced a lot of inefficiencies. A lot of things which one wouldn’t accept otherwise were accepted because everyone was making money...We were not questioning the vendors in the same way we would [now] over why their equipment was costing as much as it did, and why their procurement was inefficient," he said.

Savings obliterated

And while subsea processing has obvious advantages, it must make economic sense, Mateen said.

“Economic sense means costs lower than what you would have if you put it on the topside,” he said. “This is where the mindset has to change when it comes to the vendors.”

Subsea processing itself does not increase production, so if the savings on floaters and mooring systems are obliterated by expensive subsea processing systems, operators will stick to topsides, Mateen said.

“With entire subsea factories, the oil recoveries are not going to provide them the luxury of putting the cost wherever – it has to compete.”

This was especially true, he said, in an era of fifty-dollars-a-barrel oil:
“That recognition by the vendors has to come, and when it comes everything will start to make sense."

“We as Total see a clear future for a subsea factory concept. But I think the mindset has to change and people have to understand that what they were selling before, it is not for the same purpose, and the cost benefit has to come from the cost savings, and not from additional recoveries,” Mateen said.

Killing projects

Hans Christian Hamre, Subsea Processing Expert at Shell, said the low oil price was a wake up call on “every aspect of how we run projects.”

“We’re going to be more selective of what we install subsea. It has to make economic sense. We’re changing slightly away from an improved recovery focus in subsea processing to a capex reduction mindset.”

An overlooked advantage is the ability of subsea processing to de-bottleneck constrained topsides, in particular in the tie back of new fields to existing platforms, he said.

“So instead of trying to look at subsea processing as competition to platforms, I’d rather look at it as a kind of symbiosis, a synergy between existing topsides and new subsea technologies to make the best field development possible.”

But Hamre agreed with Mateen in that, at a time when the low oil price is “killing projects”, subsea processing technology must make its case on capex reduction rather than enhanced recovery. For the foreseeable future oil companies would be more interested in saving cash than in “exciting new technology,” Hamre said.

For Statoil, a recognized pioneer in subsea, Technology Manager Ola Gussias also agreed.

“From our side it has to make sense. It’s an interesting piece in the tool box but it has to be looked at from an overall system perspective,” he said.

“Sometimes subsea processing means having to install more flowlines, more umbilicals and risers and that’s costly stuff. But for the right application it’s still highly interesting.”

The bold final step

The “ultimate case” for subsea processing, said Shell’s Hamre, would be the total removal of the need for topsides, and the industry is still some distance from that.

“The thing for me is that every time you add a unit [of] operation on a platform, meaning an extra stage of separation, or an extra compressor, it doesn’t add much to the cost once you’ve invested in the ‘real estate’. It adds some but it doesn’t change the game on the topside. If you did a similar thing subsea, every unit operation you add to a subsea processing facility you significantly increase the scope and the cost.”

The “ultimate case” for the subsea factory would be that you need to get rid of the topside altogether in order to unlock the value, Hamre said.

“And for me that’s a real tall order at the moment because it means you would need to meet your sale specification for both gas and liquids, which is the last, incredible, difficult step in any subsea processing kit,” he said.

“I’m not saying it’s technically impossible but, once you have achieved it, you need to count and see how you made a cost saving compared to installing a platform, over the life of the field, which plays into the cost of interventions, and the fact that you now have a complex processing system on the sea bed that needs maintenance,” Hamre added.

“I can see this as a vision,” he said, “but I don’t really have the clarity about the cost effect of putting the entire process on the sea bed.”