Like just about every other sector in the oil and gas industry, the lingering oversupply-driven downturn crushed activity and continued to nip away any demand left for equipment for the subsea sector last year.

But 2017 is bringing renewed hope and expectations that the subsea industry is set for a turnaround, with many regions across the globe set to see more activity and growth in subsea tree orders this year. Oil and gas companies will still focus their attention on finances, and subsea systems considered costly for more complex reservoirs will be heavily scrutinized. While analysts may not know how far commodity prices will rise, some are certain the subsea market will appear differently than historically seen.

Subsea trends, which have already begun to surface, include focus on reduced scope, reduced cost, increased efficiency, better execution and more phased projects, according to Caitlin Shaw, research director-upstream supply chain for Wood Mackenzie.

Smaller initial startups with two or three project phases are emerging as an alternative to what would have been massive full-field developments, giving “operators not only a more digestable upfront capital expenditure investment with respect to the overall development cost but it also reduces the cycle time to first oil, which is something that has been a big challenge for deep water and subsea,” Shaw told SEN, adding it also gives a chance to right size the development over its lifecycle.

“They can come online with an early production system in that first phase, understand how that reservoir is behaving and make adjustments from there in terms of adding additional wells and additional plumbing on the seafloor instead of going for a much larger project right up front,” Shaw said. “It’s something really interesting that we’re seeing.”

Companies taking the phased approach include BP with the Zohr project offshore Egypt and ExxonMobil Corp.’s Liza project, the first deepwater project offshore Ghana. Premier Oil’s Sea Lion project offshore the Falkland Islands will likely be phased as well, she added.

And, as some others may have envisioned, this year could usher in more subsea tiebacks in place of floating production or stand-alone deepwater developments—at less cost.

“The floating production system is a large component of the overall development costs for these fields. When you take that off really you’re just looking at the subsea wells, the drilling associated with that and the pipeline infrastructure to tie that back to its host facility,” Shaw said.

Among the key subsea developments that analysts at Rystad Energy are watching this year is the effect of alliances and mergers formed between subsea production system and subsea umbilicals, risers and flowlines players.

“Will we start to see the desired efficiency gains on the seabed as a result of the new constellations?” said Fredrik Folmer Ellekjær, project manager for Rystad Energy. “Simplified subsea architecture, with direct tie-in and less tie-in structures (pipeline end terminations, pipeline end manifolds and related jumpers), will not only give less yellow steel on the seabed, but also more efficient installations. This could be in the tenders for [2017’s] subsea awards as E&Ps start to embrace the more integrated approach.”

Subsea Trees Orders Rebound

Coming off a year in which subsea tree orders sank to less than 80, compared to 2013 when more than 550 subsea trees were ordered, Wood Mackenzie forecasts that about 150 trees will be ordered in 2017.

Analysts also foresee improvement in this area with growth anticipated in just about every region, including the Gulf of Mexico and offshore Africa, where Shaw said Egypt and North African countries are jumping into subsea action that typically saw Nigeria and Angola as its main players.

“The underlying theme here is diversity in both the resource basins and the operators who are executing there,” Shaw said. “When you increase the diversity of those two things, you get more opportunities for these projects.”

The North Sea is also expected to see growth this year after Statoil, a major subsea player that began to pull back spending in 2014 ahead of the oil price crash later that year amid cost concerns.

“Now we’re seeing them open up a bit more. Norway is really going to be the story of the North Sea for the next couple of years both on the exploration side of things, which is great to hear because that’s going to fill the pipeline for development long term,” added Shaw. “Statoil is starting to talk more now about developing some of their finds off Norway, which is a really good sign for the region.”

The situation is also expected to look better for South America as Petrobras, which accounts for a large part of the global subsea demand, continues to overcome internal challenges. Shaw pointed out that Petrobras ordered only one subsea tree in 2016; however, the company had built up ample inventory in 2013 and did not necessarily need more equipment to keep production going.

Tree awards reached their 10-year low in 2016, Ellekjær added. But several larger projects are approaching financial investment decision—Johan Castberg, Liza and Leviathan, to name a few—meaning more awards could be in store. Rystad expects around 160 subsea trees will be installed globally in 2017.

Activity, Spending Set To Rise

An increase in activity means more spending.

“But the cost of subsea development is still something operators will keep a close eye on,” Shaw said. “With the complexities of these reservoirs in addition to some of the water depths, costs can easily escalate. … We may see some of the less complex projects executed first as companies wait for better oil prices to get into more complicated projects.”

Rystad Energy projects global subsea expenditures of just more than $30 billion this year, compared to $36 billion in 2016. This is down substantially from the peak of $48 billion hit in 2014.

“Towards 2020, we expect the market to recover with between 6-9% depending on the segment—SPS at 9%, SURF at 7% and service at 6%,” said Ellekjær. “This compares to topline growth of 14% from 2010 to 2014.”

Technology Pushes Ahead

When it comes to technology, the subsea sector continues to be a place to watch for innovation.

“In the subsea technology space the adaption of processing technologies will always be interesting to watch—especially the use of booster pumps as a more mainstream development method,” Ellekjær said. “We are also observing increased use of electrically heated pipe-in-pipe as a tool to overcome flow assurance issues, also in combination with processing technologies.”

Redesigned SPS equipment with simpler and leaner structures might also be underway, he added, noting Statoil’s Cap-X single wellhead solution as an example. As explained by Statoil, Cap-X is a combination of existing and new technology that is smaller than today’s subsea templates and allows more operations from vessels instead of rigs.

Shaw shared similar thoughts.

“Subsea boosting and pumping is probably one that we’re still going to see some activity on, especially in deep water and it’s also a great method for increasing oil recovery on existing projects,” Shaw said.

However, she doesn’t expect any “over-the-top” technologies to be unveiled or to see more subsea gas compression in the near term.

“The projects they’re associated with are typically more complicated and cost more,” she explained.

—Velda Addison

Offshore