There's one thing that's certain about the price of oil, it goes up and it goes down, but nobody knows when that will happen, Jim McCaul, an expert in the offshore floating production sector for 30 years, recently said in an interview for Offshore Engineer TV, discussing the past, the present and the future of the floating production market.
Apart from the oil price volatility being a certain thing, there's another thing that's sort of certain. When oil prices go down, orders for floaters dry up, and when the oil prices go up, FPS orders increase.
Last year, according to McCaul, saw only four orders for floating production systems made, and those were made early in 2020, before the pandemic hit. Still, this was not the worst year for the floating production systems (FPS) orders. It was 2008, and then 2016.
McCaul, head of offshore business intelligence firm World Energy Reports, said: "I've been following this market for quite a long time and say, since the mid-1990s. There've been numerous cases where the market has suddenly taken a big dip. Just within, say the last 10-15 years, that was in 2007, 2008 during the big financial meltdown. The price of oil dropped from $140 down to $35 in about five months and basically wiped out the industry. And in fact, I think it was in 2008, there were no orders for floating production systems. As a result, the entire year was empty.”
More recently, the year 2016 - also saw zero orders for FPS units, after a historic oil price drop that saw Brent plunge below $30 a barrel.
McCaul also reminded of the situation in 2020: "This time it went from the mid-60s basically dropped down to under $10. And in fact, the price of oil in the U.S, the West Texas intermediate actually got below zero, which was a crazy situation, but that did happen." As mentioned, the year 2020 saw only four orders.
"Typically, then it's around 12 to 15 orders. So it's usually around one a month. So when you get to four, it's pretty low. Although it wasn't as low as 2008," he said.
Uptick expected in 2021, 2022
However, with the oil prices recovering as the OPEC+ group has been curtailing output, with demand also increasing, the FPS market outlook has improved too.
So far this year, there've been four orders, three FPSOs, and one semi-submersible platform, and according to McCaul, we could see a couple more in the next few months. Keppel, for example, confirmed Friday it was in talks with Petrobras to build an FPSO for the Buzios field.
"So there's a pickup that has been taking place, no question about it. But it's slow. What's causing the market pickup is the price of oil has been going up and the price of oil has been going up because the OPEC+ group has been curtailing output and demand has been recovering a little bit. So, the price of oil is creeping up...," McCaul said.
He again warned that while there might be quite a few projects in the pipeline, the final investment decisions will be totally dependent on the market.
"So if the price of oil remains at $60 plus or $50 even plus, there's about 30 production floaters that are out there, that are ready to go to an investment decision sometime within the next 18 months. So that's between now at the end of this year, and the end of 2022. I think that the market will continue to recover. I think 2021 will probably be a pretty good year. 2022 will be even better if the price of oil remains high."
Watch the full interview below: