Oil and gas operating company project delays, potential cancellations and budget overruns follow a 53% climb in major offshore oil and gas construction costs over the past 2 years.
IHS Inc. and Cambridge Energy Research Associates (CERA) developed the Upstream Capital Costs Index (UCCI) on more than 20 onshore and offshore oil and gas development projects. After a 13% climb in the UCCI, the cumulative increase since 2000 totals 67%. According to CERA Chairman Daniel Yergin, “This continuing cost surge is central to every energy company’s strategic planning and to every energy user’s expectations for supply security in the coming years.”
These “higher costs, combined with the recent drop in gas prices, have made some projects
Current and projected subsea processing systems expenditures reflect low, most likely and high performance outcome numbers. (Graph courtesy of Douglas-Westwood and OTM Consulting) |
“If current trends continue, 2007 is shaping up to be a year of further increases. Despite a slight slowing in the rate of increase during the 6 months to Oct. 31, we expect project capital costs to continue reaching new record levels during 2007,” Ward said. “With high oil prices driving new development projects, capacity constraints continue to support increases in the cost of equipment and services.”
Subsea processing
In conjunction with oil and gas specialists OTM Consulting, Douglas-Westwood conducted its latest study to evaluate subsea processing systems expenditures.
At the recent Subsea Technology Conference held in London, Douglas-Westwood Oil and Gas Manager Steve Robertson interpreted the latest report’s findings. “If operators’ performance expectations are met, then over the next decade expenditures on subsea processing could in our ‘most likely’ scenario amount to over US $3.4 billion worldwide,” he explained.
Regional market size was ranked in order beginning with Western Europe ($1.1 billion), Africa ($788 million), Latin America ($594 million), and North America ($576 million).
Production-related factors
George Trowbridge, senior consultant at OTM observed, “The drivers that have encouraged interest in this area have been evenly spread between certain technical, production and financial factors; production-related drivers (increased production rate, increased ultimate recovery, etc.) are now seen as being much more important.”
He continued, “In our 2000 and 2003 surveys, a number of fields were identified as possible sites for subsea processing, whilst in the latest 2006 survey, several oil companies now have firm plans to use subsea processing, with potential areas of application spanning all the major deepwater regions in the world.”
ROVs
Remotely operated vehicles (ROVs) also reflected more subsea activity. “The work-class ROV industry has seen strong growth driven by the high and sustained oil prices of recent years, and we expect this to continue. This manifests itself in the build of new drilling rigs and offshore construction vessels, all of which use ROVs in subsea operations” explained Rod Westwood, analyst for Douglas-Westwood, in The World ROV Report 2007-2011.
Based on 2006 expenditures, some $827 million (an 86% increase from the 2002 figure) in expenditures are projected to rise to $1.46 billion by 2011. This figure represents more than a tripling of the market over just a 10-year period.
The only way to meet the dual demands of market growth and current fleet attrition would be to construct more than 120 new work-class ROVs a year. “Based on average cost-per-unit, we forecast work-class ROV Capex will increase from its 2006 level of $186 million to $247 million by 2011, an increase of 33% over the period. Cumulative expenditure is expected to be a little over $1 billion over the forecast period,” Westwood said.
Recommended Reading
Spate of New Contracts Boosts TechnipFMC's Subsea Profits
2024-04-30 - TechnipFMC's operational profits are growing as the company heightened its focus on “quality” subsea orders, which earned $2.4 billion for the first quarter.
Exclusive: Silixa’s Distributed Fiber Optics Solutions for E&Ps
2024-03-19 - Todd Chuckry, business development manager for Silixa, highlights the company's DScover and Carina platforms to help oil and gas operators fully understand their fiber optics treatments from start to finish in this Hart Energy Exclusive.
CERAWeek: AI, Energy Industry Meet at Scary but Exciting Crossroads
2024-03-19 - From optimizing assets to enabling interoperability, digital technology works best through collaboration.
Cyber-informed Engineering Can Fortify OT Security
2024-03-12 - Ransomware is still a top threat in cybersecurity even as hacktivist attacks trend up, and the oil and gas sector must address both to maintain operational security.
Forum Energy Signs MOU to Develop Electric ROV Thrusters
2024-03-13 - The electric thrusters for ROV systems will undergo extensive tests by Forum Energy Technologies and SAFEEN Survey & Subsea Services.