Pipeline market to grow in Europe, Asia, and Africa

Since the turn of the millennium, global pipeline investment has undergone sustained and, in recent years, robust growth as a result of favorable market conditions and industry trends, including: the continued high levels of investment in offshore development, and the increasing focus on deepwater production and the development of remote fields. The pipeline sector is expected to account for a 39% share of total offshore capex for 2013, while 2014 is expected to witness the number of kilometers installed return to levels not seen since 2006. Although key developments for 2013 are led by the ultradeepwater Gulf of Mexico (GOM), going toward 2017, Infield Systems (Infield) expects pipeline development offshore Europe and Asia to become the largest markets for global demand, Fig. 1.

Asia

During 2008-2012, Asia accounted for the largest share of pipeline capital expenditure, with China leading regional pipeline investment. Historically, the Asian region has been predominantly driven by conventional shallow-water developments associated with fixed infrastructure. Over 2008-2012, Southeast Asia led this conventional shallow-water market. Going forward, conventional activity is expected to focus on Mumbai High redevelopment offshore India, the Bongkot and Arthit expansion projects in Thailand, and the Bao Vang field, Vietnam.

Across the entire pipeline market, Malaysian developments are expected to require the largest expenditure over the next five years. The Indian pipeline sector is also expected to remain robust to 2017, with Mumbai High forecast to require the greatest investment from 2013-2015. Domestic firm Punj Lloyd was confirmed as the subsea pipeline and platform topside contractor in May 2013.

Over the next five years, Infield expects development across this region to become increasingly polarized as new areas of deepwater activity emerge and remote prospects become viable for production. As such, the proportion of regional expenditure directed toward conventional pipeline development is expected to decrease by 8%,compared with 2008-2012, while both the SURF (subsea, umbilical, riser and flowline) line and export line sectors are anticipated to hold a larger share of total regional capex over the period, Fig. 2.

Key developments are expected to include the PTT-operated Erawan Gas export pipeline development off Thailand, and the Shell-operated Kasawari project, Malaysia. Within the deepwater market, ONGC and Reliance are expected to account for the largest investments as a result of the Krishna- Godavari and Dhirubhai projects. Operators Chevron, Shell, and Murphy are also expected to direct substantial expenditure toward deepwater pipeline installations over the next five years.

Over the 2013-2017 timeframe, Asia’s share of the global pipeline market is expected to decrease, while Europe, driven by a number of large export line projects, is anticipated to account for the largest share of global expenditure. During the previous five years, European pipeline expenditure was dominated by the development of the Gazprom-led consortia’s Nord Stream 1 and 2 lines. Going forward to 2017, European demand is expected to continue to be dominated by these long-distance export lines, with substantial investment also expected on possible Nord Stream extensions to the Netherlands, and the South Stream; the latter saw construction commence in December 2012. Statoil’s Aasta Hansteen and Johan Sverdrup fields are anticipated to require some of the highest levels of investment over the next five years, with the latter development seeing field appraisal completed during June 2013.

In the longer term, with increasing global energy demand and improvements in technology, the economic viability of developing remote prospects far from shore is increasing. With this, SURF line activity is expected to become an increasingly important sector of the market. While export and trunk lines are anticipated to drive the increase in capital expenditure within the pipeline market offshore Europe over the medium term, Infield expects to see an increase in the number of fields in remote waters. Offshore northern Norway and West of Shetland will enter production, with key remote fields Snohvit, Johan Castberg, and Rosebank all requiring substantial SURF line expenditure during the period.

While Infield’s 'Offshore Pipelines & Control Lines Market Report to 2017' examines this emerging trend within its global context, the role of SURF line development within the European region going forward is particularly significant; between 2013 and 2017, European SURF line expenditure is expected to increase by a CAGR of 18%, with the highest demands for SURF installations anticipated for the Johan Castberg development.

Africa

Over the previous five years, Africa held a 10% share of global pipeline capital expenditure, led by developments off West Africa and within Egypt’s Mediterranean waters. While historically conventional pipeline developments have been the primary source of expenditure demand, with the growth in the West African deepwater market, led by Angola, SURF line investment has recently increased to form a leading share of regional pipeline expenditure. Going forward to 2017, Infield expects this trend toward deepwater SURF line investment to continue, thereby providing significant opportunities for the supply chain.

Although this expected demand is likely to be driven predominantly by Angola and Ghana in the short to medium term, the key theme is the reemergence of activity in Nigerian waters toward the end of the forecast period. Capital expenditure on pipeline developments is anticipated to increase by a CAGR of some 39% over 2013-2017. Nigerian activity is expected to be driven by SURF line expenditure on the Totaloperated Egina and Shell/Chevron Bonga Southwest developments, in particular. Over the next five years, Infield also expects significant pipeline investment offshore Congo (Brazzaville) and Equatorial Guinea; while in the north, pipeline activity off Libya is also anticipated to pick up, with capital expenditure increasing by a CAGR of over 60% over the next five years.

Other changes in the market include the expected increase in activity in the deep and ultra-deepwaters offshore East Africa. While remaining a marginal area of pipeline investment, compared to the established production zones off West Africa, Infield anticipates pipeline expenditure to begin off Mozambique on the Prosperidade development during 2016.

Middle East/Caspian

The Middle East and Caspian region is dominated by the presence of conventional shallow water activity across Azerbaijan, Saudi Arabia, Qatar, Kazakhstan and Iran. Over the historical five year period to 2012, the region accounted for a 13% share of global pipeline capital expenditure, 55% of which was directed toward conventional pipeline developments. Trunk and export pipelines have also historically formed a significant share of regional spend. Going forward, despite an increase in actual spend, the region’s market share is expected to reduce to 10% of the global total, as a result of higher incremental spending from other regions. During this period, the conventional pipeline sector is anticipated to remain dominant within the region, although its share is expected to reduce to 53% due to a continued increase in trunk and export line activity, Fig. 3 and 4.

A key driver of historical development in the Middle East and Caspian has been the strong growth in natural gas demand from the Persian Gulf and the wider Middle East. The Persian Gulf region has abundant natural gas reserves, but at present only Qatar is a significant exporter. Iran, faced with continued sanctions, finds itself a net natural gas importer, despite holding the world’s second largest gas reserves. Despite this, over the previous five years, Iran remained the largest destination for operator pipeline expenditure, with the giant South Pars comprising around 20% of the entire region’s pipeline expenditure during 2008-2012.

Going forward, Israel is expected to emerge as the region’s largest area for pipeline investment, driven by Noble’s giant Leviathan project. Another key area of pipeline demand across the Middle East is likely to be Azerbaijan, where BP is anticipated to direct significant capex toward phase 2 of the Shah Deniz development, while pipeline capex demand is also forecast to remain significant offshore Abu Dhabi and Iran. The giant Kashagan development offshore Kazakhstan is also anticipated to require significant pipeline investment.

North America

The North American pipeline market has a mature asset base, which has primarily focused on conventional shallow-water developments and, over recent years, has been significantly affected by the rise of onshore shale gas production,with operators diverting investments to this emerging market. The level of conventional pipeline activity is forecast to decline by 39% over the next five years, compared to the previous five-year period. However, with increasing deepwater activity, the decline in the shallowwater conventional sector is anticipated to be buffered to an extent.

Simultaneous with the decline in conventional pipeline investment, Infield expects the region to witness a growth in SURF activity. Driven by deep and ultra-deepwater developments in the US GOM, key fields demanding significant SURF line expenditure are anticipated to include: Keathley Canyon’s Lucius, Moccasin, and Hadrian South fields. Indeed, as a proportion of global pipeline expenditure, the North American region is expected to see a decrease to 9% over 2013-2017, from 13% over 2008-2012. Infield expects opportunities to remain within the region, particularly from deepwater work that is expected tocomprise 71% of the region’s pipeline expenditure; the majority of which is expected to emanate from fields that are being developed using tie-backs, rather than with trunk/ export line infrastructure.

Latin America

The Latin American market is polarized between the conventional Mexican market and the extensive Brazilian sector. Each country is dominated by the presence of a national oil company. In the case of Mexico, Pemex is seeking to increase production from the Bay of Campeche; while in Brazil, Petrobras seeks to develop its discoveries within the pre-salt Santos and Campos basins. Opportunities are diverse across SURF, conventional, and trunk line infrastructure and, as such, the development of the region will be key to overall industry appetite.

Over the previous five years, Brazil dominated the region across all areas of offshore demand, and this will continue during the forecast. Offshore, key pipeline projects over 2013-2017 are expected to include Roncador, Iracema Sul, and Lula Central. In terms of water depth, 78% of Brazil’s pipeline capital expenditure demand will be required by developments in water depths of 1499m and greater.

In contrast to Brazil, the Mexican market has not focused on deepwater exploration and production in recent years. Pemex has sought to increase its production from the giant Cantarell and Ku-Maloob-Zaap fields and this investment has been characterized by shallow-water conventional installations. Over 2013-2017, Infield expects 64% of pipeline expenditure off Mexico to be directed toward shallow-water developments. Elsewhere, Infield also expects pipeline expenditure to be required off Trinidad and Venezuela.

Australasia

The Australasian region is expected to comprise 6% of global pipeline capex over the following five-year period. The large West Australian gas fields, such as Wheatstone, Ichthys, and Gorgon, define the majority of the Australasian pipeline market. Going forward to 2017, significant pipeline investment is anticipated on the Calliance and Poseidon/Kronos developments.

The current Australasian pipeline market is primarily shallow water based; however, the implementation of secondary and tertiary stage developments is set to see the deepwater segment of the market grow. In pipeline segment terms, Australasian developments over the previous five years have been characterized by trunk and export line installations, forming a 59% share of the region’s pipeline expenditure during 2008-2012. Going forward to 2017, while retaining the largest share of demand, the trunk and export line market sector is forecast to decrease to 56%, as a result of the growing trend to SURF line development.

With the global pipeline market sector forming an increasing share of total offshore capex, the next five years are anticipated to see the emergence of Europe as the leading market for investment, while Asia and Latin America, in particular Brazil, are also expected to undergo significant increases in capex over the period to 2017. The trend toward SURF line installations is anticipated to continue, with a year-onyear increase forecast in capital expenditure. The conventional pipeline market, despite a rise in actual spend, is expected to experience a decreasing overall market share. The trunk and export line market is anticipated to undergo a substantial increase; driven by European activity over the short term and, over the longer term the Australasian and Middle East markets. OE

Catarina Podevyn has been an analyst with Infield Systems Ltd. since 2008, has worked across various sectors, and authored numerous articles and publications. Her core expertise is the floating platform sector, and both the deepwater and ultra-deepwater markets, particularly offshore West Africa and Latin America. Podevyn earned an Economics degree from Loughborough University, UK.

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