Newbuild growth: Brazil, Africa, SE Asia and Australia

April 15, 2013

The FPSO market appears to be emerging from the economic downturn stronger than ever, with new project awards and forecasted capital expenditure expected to gain momentum throughout the next five years.

While challenges certainly remain, strong driving forces, including the movement into deeper, more remote waters, the emergence of FLNG technology and the unwavering ambitions of Brazil’s national oil company, are set to support the use of the FPSO concept within the offshore market for many years to come.

Conversions and Newbuilds

In terms of the global active fleet, converted and refurbished FPSOs form the majority share at 68% of operational units as of 1Q 2013. Despite a growth in FPSO developments anticipated to take place in more challenging environments and deeper waters; often necessitating the construction of a technologyspecific new build unit, the converted FPSO sector is forecast to remain robust going forward to 2017, with FPSO leasing contractors further strengthening their place in the market. Indeed, of the 12 FPSOs currently under conversion, half are Newbuild growth: Brazil, Africa, SE Asia and Australia owned by leasing contractors, with SBM leading the way in fleet additions and refurbishments.

Perhaps predictably, Keppel and its subsidiary Keppel Shipyard hold the dominant share of conversion projects taking place over the next five years. Specializing in fast-track modification and fabrication work, key clients include leading lease contractors SBM and BW Offshore. SembCorp Marine’s Jurong Shipyard also has a tradition of specializing in convertsion projects. In addition, with the FPSO sector expected to be heavily dominated by developments offshore Brazil over the next five years and beyond, Brazil’s Odebrecht, alongside it’s Japanese partner Kawasaki Heavy Industries, is expected to emerge as a key player within the sector. It already secured Petrobras’ conversion projects for four ultradeepwater FPSOs, to be located in pre-salt Santos Basin.

Awards for newbuild units have also witnessed an increase in recent years, with newbuild solutions generally favored by IOCs developing large fields with longer field life expectancies. Going forward, the newbuild market is expected to be predominately driven by the demand for new technologies and concepts to meet the challenges of harsh environments and challenging reservoir conditions. In addition, with operators turning their attentions toward the natural gas market, the FLNG concept has also emerged, and is likely to form a significant proportion of newbuild investment over the forthcoming five years. Indeed, recent contracts, such as the one for Shell’s Prelude FLNG FPSO that saw construction commence October 2012 at Samsung Heavy Industry’s Geoje Shipyard in South Korea, represent a huge step within the emerging FLNG sector, and add impetus for similar developments to receive financial backing. Over the 2013-2017 period, Infield Systems expects four FLNG installations to take place, with additional capital expenditure expected on a possible further eight developments, to be installed during the course of 2018 and 2019.

Infield Systems expects the number of newbuild units entering the market to peak in 2016 and 2017, with Prelude likely to feature as the largest of these new installations. On a global level, the newbuild market will be primarily driven by the regions of Asia and Latin America, with key newbuild projects including five units for the Lula area alone, offshore Brazil, Gendalo-Gehem (Indonesia), Rotan (Malaysia), and Su Tu Trang (Vietnam) offshore Asia, all of which are expected to demand significant capital expenditure over the forthcoming five years.

Regional Outlook

While Brazil is expected to remain dominant, holding a 33% share of FPSO global capex and up to 39 installations anticipated to take place before the close of 2017, significant challenges remain in meeting Petrobras’ ambitious targets. The key issue facing contractors and operators looking to secure contracts and licences offshore Brazil is the local content (LC) requirements. For an FPSO construction, it has been calculated that about 64% of inputs can be sourced locally, although in reality it has been far less. However, with LC requirements around the 30-35% mark, as seen on the BM-S-9 development and Statoil’s Peregrino, going forward local supplier capacity is expected to increase. Indeed, with the construction of 11 new shipyards to keep pace with Petrobras’ expansion plans, the industry can expect the local content percentage of new FPSOs entering the market to increase dramatically over the decade, and the achievement of the Petrobras-set target of 75% LC by the end of the decade is not out of the question. Traditionally FPSO hull constructions have taken place outside the country, with topside fabrication and integration taking place at local yards. However, going forward hull construction is also likely to take place locally, with eight units currently seeing both hull and topside construction planned at Brazilian yards.

With the scale of Petrobras’s field development plans and notable local content requirements, developments within the market and a change of strategy by contractors and operators looking to secure a stake in Brazil’s market have been noticeable over recent years. BG Group is one company working with Petrobras on taking a standardized modular approach to construction, which won them the 2010 contract award for eight “replicant” FPSOs. This approach benefits from scale and repeatability, the latter of which in turn enables a higher level of local content to be used, with the transfer of skills and the “learning by doing” effect easily realized. Through improving the efficiency during the construction phase of development, a fast-track to production can be achieved. This concept was most successfully seen through ExxonMobil’s “design one, build multiple” approach to the development of the Kizomba A, B and C units, offshore Angola, which highlighted how both efficiency and LC requirements could be met. It is this strategy that is likely to best ensure Petrobras’ high ambitions are achieved to timescale and to budget. The recent award of two virtually identical FPSO contracts to Keppel Fels Brazil for the fabrication and integration of the topside modules for the P-66 and P-69 FPSOs represents a further example of maximizing efficiency and LC demands going forward.

Somewhat surprisingly, with a total of nine new or redeployed FPSO units expected to witness installation offshore UK over the next five years, the country will be placed second only to Brazil in terms of numbers of FPSO installations, while in capex terms the UK is expected to be ranked fifth globally over the period. Despite February 2013 seeing the cancellation of Shell’s FPSO development plans for the Fram field, which was set to use an SBM-owned vessel, recent months have also seen more positive news with regards to the future of the UK North Sea and the prospect of several FPSO development solutions taking place in the area. One example is the agreement between Hummingbird Production Ltd, a subsidiary of Teekay Production, for the lease of the Hummingbird Spirit FPSO on Antrim’s Fyne Field, in November 2012. Over the next five years, Infield Systems expects leased FPSO units to dominate the UK’s FPSO market, with Teekay currently holding three contracts for the aforementioned Fyne field, in addition to the Beechnut and Catcher developments. While converted leased units are expected to dominate, Infield Systems also forecasts two newbuilds to be installed offshore UK during the same period; on the KNOC operated Harris (Western Isles) field and BP’s Schiehallion development. Elsewhere in the NWECS region, December 2012 also witnessed the start-up of BP’s Skarv field, where a new-build harsh environmentadapted FPSO is expected to be operational for 25 years. Going forward to 2017, Infield Systems expects a further three FPSO units to see installation within Norwegian waters including the two newbuild units of Knarr and Goliat.

Offshore Asia 30 FPSO installations are expected to take place between 2013 and 2017, compared with just seventeen installations between 2008 and 2012. In contrast to Latin American FPSO developments, where the average tonnage per unit is anticipated to be over 200,000m tonnes and is situated in an average water depth of almost 1600m, offshore Asia the average tonnage of FPSOs is expected to be around 120,000 tonnes over the period, with average water depths of just 160m. Currently one newbuild unit is under construction; the Enping 24-2 FPSO at the Dalian Shipbuilding yard in Liaoning, China. A further four FPSOs are currently undergoing conversion, with two units, the Cendor and Balai FPSOs to be installed offshore Malaysia during the course of 2013. The PetroVietnam operated Thang Long FPSO offshore Vietnam and ONGC’s Mumbai D-01, offshore India, are also expected to see installation before the end of the year. Over the forthcoming five years, Malaysia and Indonesia are expected to continue to be the primary drivers of the FPSO market in Asia, each with eight units expected to see installation over the period. Offshore Malaysia key projects include two FLNG developments; the Petronas FLNG FPSO- 1 and FPSO-2 to be located on the Kanowit and Rotan fields. June 2012 saw Petronas award a Technip-Daewoo Consortium a $2 billion contract for the first of these units, which will include the engineering, procurement, installation and commissioning for the FLNG facility, with hull construction expected to take place at Daewoo’s shipyard in South Korea.

Offshore Africa FPSO activity is also expected to remain strong; with Infield Systems forecasting 19 FPSO developments over the next five years. Here, Angola is anticipated to continue to dominate the FPSO market, with eight projects in the planning or construction phase, all of which are likely to be completed before the close of 2017, including the giant newbuild CLOV FPSO and the Gindungo (Kaombo1) FPSO, for which operator Total has selected a converted design. Nigeria is expected to see less activity than in the previous five years, with just three installations expected; matching the number of anticipated installations offshore Gabon across the same timeframe. Significant challenges for operators wishing to undertake capital intensive FPSO developments remain across the region, particularly offshore Nigeria, where local content demands and project risks continue. Furthermore, with the uncertainty surrounding the much delayed Petroleum Industry Bill (PIB), foreign companies are growing increasingly wary about committing to investments in new projects within the country. In addition, traditionally a large proportion of Nigerian exports have been destined for the North American market, but with the sudden rise of the shale gas market, exports to the USA are in decline. Elsewhere in the region offshore activity remains strong, with FPSOs destined for the Etame, Duffafu Ruche Marin and Iguega fields, offshore Gabon, and also planned for fields offshore Cameroon, Congo (Brazzaville) and in the north on the Cosmos South field, off Tunisia. Ghana’s offshore development is anticipated to remain robust throughout the remainder of the decade, with Infield Systems forecasting an additional two FPSO units to be installed on the Tullow-operated TEN (Deepwater Tano) and Eni’s Sankofa fields during 2015 and 2017 respectively.

In regions not traditionally associated with FPSO development, the coming five years are expected to witness several milestone projects, with the Australasian market in particular emerging as a hub for FLNG development. Indeed, over the 2013-2017 timeframe, FPSO capital expenditure within the Australasian region is expected to increase from 9% to an 11% share of the global market, surpassing both Asia, despite its considerably larger share of installations (30 compared to Australasia’s 4), and Europe.

Offshore North America, Infield Systems expects an additional FPSO to be installed within the Gulf of Mexico. This will occur on the ultra-deepwater, Shell-operated Stones field, following the Petrobras-operated Cascade FPSO in 2011, the first FPSO installation in the region. Offshore western Canada, the Douglas Channel FLNG FPSO is also expected to enter production before the end of the period. Both developments are anticipated to be newbuild units, with North America forecast to form a 2% share of the FPSO global market in capital expenditure terms.

Offshore Middle East, a region with no prior FPSO development, Infield Systems expects for the South Pars FPSO, operated by the Petroiran Development Company (PEDCO) to see an installation during the period, while capital expenditure is also expected to commence on the Leviathan and Tamar FLNG FPSO developments, offshore Israel. OE

Catarina Podevyn has been an analyst with Infield Systems 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.



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