Energy industry analysts seem to agree that the future is bright, or at least brighter, when it comes to the contracting activity for the floating production systems, from 2021 onwards after COVID-19 and low oil prices hit the market in 2020.
Norway's Rystad earlier this week said that, apart from the Sangomar FPSO ordered by Woodside in January, it expected no further FPSO orders this year. It said, however, it expected a spike in FPSO orders next year with seven new awards.
Another energy intelligence group, Westwood, on Thursday issued an outlook for Floating Production Systems which somewhat differs from Rystad's when it comes to 2020, but Westwood too expects the number of FPS orders to rise from 2021 onwards, in large part boosted by orders in Brazil.
Per Rystad, only one FPSO order has been placed this year - Sangomar in January. While Malaysia's Yinson in March signed the firm order of the Marlim FPSO, Rystad, however, has placed this order in 2019, as this is when the letter of intent was awarded.
Westwood, on the other hand, counts both the Sangomar and the Marlim in 2020 and expects two more contracts to be awarded this year Equinor’s Bacalhau unit and Petrobras’ Mero 3 for a total of $5 billion-plus worth of orders in 2020.
A decline of 59% compared to 2019
"In the short-term, Westwood expects FPS engineering, procurement, and construction (EPC) contract awards to reach a total of just over $5bn 2020 – a 59% decline from 2019’s ~$13bn – assuming a base oil price of $37/bbl in 2020. The new research is a 73% reduction compared to Westwood’s pre-COVID outlook," the group said.
"1Q 2020 saw two key FPS EPC contract awards (Sangomar FPSO and Anna Nery FPSO [LOI in 2019]), accounting for approximately $2bn of FPS EPC value and 170 kbpd of additional liquids production capacity. Other key FPS EPC contracts still expected to be awarded in 2020, include Equinor’s Bacalhau unit and Petrobras’ Mero 3, accounting for over $3bn in EPC spend and 400 kbpd of additional liquid production capacity," Westwood said.
2020 orders hit by COVID-19
Mark Adeosun, Senior Analyst, Offshore at Westwood Global Energy Group said: “While the impact of the pandemic has hit FPS EPC contract awards significantly this year, the industry is in a much better place than the downturn of 2016 based on order intake so far, as well as the healthy backlogs of FPS contractors stemming from 2017-2019 activity. Despite this, the overall impact of Covid-19 on the FPS market represents a step backward for an industry which had expected 2020 to be a bumper year in 4Q2019”.
Longer-term, over the 2020-24 period, Westwood says probable FPS EPC contract awards are estimated at $56 billion – including 40 FPSOs, 9 FPSS, and 7 FLNG systems
The outlook for the [FLNG units], however, looks increasingly difficult, as low spot prices and looming overcapacity threatens the attractiveness of potential future investments, Westwood said.
Worth noting, Westwood has created the outlook based on an anticipated average oil price of $60/bbl from 2022.
Adeosun adds: “Over the next five years, Latin America will account for nearly 42% of probable FPS awards – totaling an estimated $24bn. Brazil is expected to dominate investment, as international oil companies ramp up activity and Petrobras commits to the development of its pre-salt discoveries. Outside Brazil, Guyana will contribute two additional orders to the forecast in addition to the Liza Unity and the Prosperity FPSO that are currently being built in Singapore (Topsides) and China (Hull).”
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