With a pause in its general growth very likely for the floating production sector in 2015, analyst Energy Maritime Associates (EMA) has flagged up Floating Liquefied Natural Gas (FLNG) as a segment that could very well buck the trend and benefit directly from the industry’s downturn in the current low oil price environment.
In its latest and updated ‘2015-2019 Floating Production Systems Outlook Report’, EMA highlights that the floating production systems market is forecast to see up to 188 orders over the next 5-year period, although its low-case scenario is 105. This represents total capital expenditure ranging from US $80.2 to $157.4 billion. It’s “most likely” forecast, however, is for 142 orders, representing approximately $118.5 billion in spending.
Due to the expectations for a continued lower oil price, it said, it had reduced its forecast for oil processing units.
“However, given the apparent ability to finance small/mid-size LNG-related projects, we have increased the number of FLNG and FSRU (Floating Storage and Regasification Units) orders, which are expected to account for 25% of the Capex over the next five years,” it stated.
This view is backed up by recent activity in that sector, by companies such as Exmar (see DI, 23 December 2014, page 8), and Golar LNG (see related story, page 7). Both are already building their first units, and in December both ordered second facilities on spec, with options for more.
EMA says that FPSOs will still, unsurprisingly, be the largest category with 45% of expected orders and 60% of Capex. Units for Brazil and Africa will account for $48 billion of expenditure, followed by $30 billion in Australia and SE Asia, and $25 billion in the Gulf of Mexico and Northern Europe. Significant growth is expected toward the end of the decade in Mexico as international companies enter the market, it adds. The report covers floating systems including FPSOs, FLNG, FSRU, Tension Leg Platforms, Spars, Semisubs and Floating Storage and Offloading units.
In 2014 a total of 30 contracts were awarded, worth more than $18 billion. This featured 10 FPSOs, eight FSOs, five FSRUs, four FLNGs, two MOPUs (Mobile Offshore Production Units), and one Production Barge.
Shipyards in Singapore received the largest number of build contracts, with eight awards last year, while South Korean yards had four and Chinese yards three.
EMA also highlighted the following:
- 27 units were delivered: 11 FPSOs, 9 FSOs, 4 FSRUs, 1 Semi, 1 Spar, and 1 MOPU, with 13 of these for SE Asia. Only three were delivered to Brazil, compared to 11 in 2013.
- Nine units were decommissioned – 4 FSOs, 2 FPSOs, 2 MOPUs, and 1 Production Semi. Three of these, all FSOs, were immediately scrapped, while two have been redeployed, and the remaining four units are available for lease or sale.
The analyst also went on to focus on Brazil’s Petrobras, saying that the operator had planned to award at least 14 new FPS contracts over the next three years. “However, this is unlikely to happen on schedule given the corruption scandals and financial issues surrounding the company,” it stated. EMA’s survey of the floater industry found that “most respondents felt there will be short delays for the contracts already placed, with longer delays for contracts to be tendered in 2015 and 2016. Only 3% felt that any contracts would be cancelled.”
This year is, also perhaps unsurprisingly, expected to be one featuring a market slowdown and restructuring. Respondents expect less tendering and contract execution activity in 2015, with the year expected to be a time of internal reassessments and review. In December, for example, market conditions were cited by SBM Offshore in its corporate restructuring which will see it lay-off a total of 1,200 staff.
Contracting activity is expected to increase in 2016, continues EMA, to levels that could even exceed 2014’s. “This is the view in our 2015-2019 forecast, as well as from respondents to our annual survey. A rebound in orders was seen after the last two downturns in 2004/5 and 2009/10,” it stated.
According to EMA’s managing director, David Boggs: “Currently, most contractors have a reasonable order book, but this is starting to decline as oil companies defer awards, while waiting for development costs and oil prices to bottom. Although there may not be much project activity in 2015, we expect a great deal of corporate restructuring, including M&A and asset sales. Assuming oil prices begin to recover in the second half of 2015, we expect a surge of new orders in 2016.”