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Memo
Strategic Horizons
17 October 2013
Susan Farrell | Vice President | PFC Energy acquired by IHS |
[email protected]
Direct (1 202) 721 0337 | Switchboard (1 202) 782 1199
Strategic Advisors in Global Energy
Beijing Houston Kuala Lumpur Moscow Paris Singapore Washington
www.pfcenergy.com
FPSO Demand Dip is Temporary Executive Summary New FPSO awards
have been running at 12-13 per year in 2011 to 2013, and that
number is expected to drop to 10 in 2014. We expect an increase
back to trend in 2015 then an increase to 14-15 new FPSOs per year
going forward. Capital expenditure for FPSOs will reach $14 billion
by 2015 and remain high.
Slight slowdown in FPSO activity with just three FPSOs ordered
in the last four months compared with six in the first five months
of the year.
Forecast for 2013 and 2014 awards cut due to fewer FPSO
requirements from OGX and Shell risk-adverse leasers and growing
local content requirements.
The 2014 dip in demand is temporary as we expect operators and
contractors to gradually adjust to local content and leasing
issues.
Despite tight capacity, competition is stiff among the South
Korean yards. Overall, Singapore yards are working at less than
half their capacity.
In the oversupplied conversion market, Chinese yards have taken
market share.
Inefficiencies and regulations have hindered capacity expansions
in Brazil. We can expect more projects being sourced overseas or
see massive project delays.
From IHS Market Survey System (MSS) Service
0
5
10
15
20
25
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
FPSO Awards Forecast
North America
Med. & Middle East
Central America
Europe
South America
Africa
Asia-Pacific
Number
IHS Market Survey System (MSS) Service FPSO/FSO Market
Segment
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FPSO Demand Dip is Temporary | Page 2 Strategic Horizons
www.pfcenergy.com/members | [email protected] Beijing (86
10)6530-7010 | Houston (1 713) 622-4447 | Kuala Lumpur (60 3)
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Moscow 7 (495) 797 3733 | Paris (33 1) 4770-2900 | Singapore
(65) 6407 1440 | Washington (1 202) 872-1199 PFC Energy, Inc. |
License restrictions apply. Distribution to third parties requires
prior written consent from PFC Energy
Demand for FPSOs Slows Somewhat FPSO activity is slowing
slightly with operators ordering three FPSOs in the last four
months compared to six in the first five months of 2013. OGX
cancelled its OSX-2, OSX-4 and OSX-5 projects in Brazil and Shell
has cancelled its Fram project in the North Sea after unexpected
well test results.
The recent cancellations and slowdown in FPSO awards mark a
turning point after three years of robust growth. We believe
operators will order fewer FPSOs in the next 12 months.
Visible demand in Brazil has fallen dramatically as OGX had
previously estimated that it would need 19 FPSOs as part of its
2019 production target. As OGX is facing funding difficulties, it
is unlikely that the operator will order any FPSOs in the next five
years.
Lessors are risk averse after incurring losses and are taking a
longer time to evaluate projects. BW Offshore, one of the market
leaders along with SBM and MODEC, has not signed a new order since
2010 and has been more focused on renewing its existing
contracts.
Lastly, it is no longer business as usual to undertake an FPSO
project. Contracting processes in many countries are slowed by
higher local content requirements which entail FPSOs being built or
owned by domestic companies with minimal FPSO experience. In
Brazil, tight yard capacity and a shortage of skilled labor makes
it difficult for operators and contractors to comply with local
content requirements.
Despite the recent slowdown, the long-term outlook for FPSOs
remains healthy. We expect awards to rebound in 2015 once operators
and contractors adjust to new market conditions. By 2015 some
projects in Brazil (Cidade de Mangaratiba MV24) and Angola (CLOV)
with substantial local content requirements should have achieved
first oil.
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FPSO Demand Dip is Temporary | Page 3 Strategic Horizons
www.pfcenergy.com/members | [email protected] Beijing (86
10)6530-7010 | Houston (1 713) 622-4447 | Kuala Lumpur (60 3)
2172-3400
Moscow 7 (495) 797 3733 | Paris (33 1) 4770-2900 | Singapore
(65) 6407 1440 | Washington (1 202) 872-1199 PFC Energy, Inc. |
License restrictions apply. Distribution to third parties requires
prior written consent from PFC Energy
Each region has unique FPSO requirements. Africa and Brazil tend
to face high local content requirements and typically involve large
FPSOs which can cost more than $ 1.0 billion each. In contrast,
European projects have no local content requirements and frequently
involve redeployments for smaller fields. Asia-Pacific comprises a
combination of newbuilds, conversions and relocations.
FPSO Supply Capacity Yards usually specialize in the markets
that best meet their engineering, construction and financial
capability and generally can be classified into two categories:
FPSO newbuild yards and FPSO conversion yards.
The South Korean yards are the only ones capable of building
high-spec FPSO newbuilds required of the West African and North Sea
market.
Singapores Keppel and Sembcorp Marine are the preferred choices
for FPSO conversions, although Chinese yards are increasingly
gaining market share in the conversion market.
China is increasing newbuild capacity.
Brazil has no experience building hulls and Engevix is currently
working on its maiden project,
Capacity for FPSO newbuilds is highly influenced by global
shipbuilding demand, including VLCCs and drillships. In 200607, the
high shipbuilding activity reduced shipyard capacity for FPSO
newbuilds. In 201214, the still heavy shipbuilding and rigbuilding
workload will keep available capacity in check.
Currently, the South Korean yards are working on a historically
high number of projects, with very little spare capacity. However,
the South Korean yards will still compete aggressively as they will
need to replace the huge drillship deliveries going out in 201314
and the large number of FPUs deliveries in 201516.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
FPSO Capital Spend Forecast
North America
Med. & Middle East
Central America
Europe
South America
Africa
Asia-Pacific
$ Millions
IHS Market Survey System (MSS) Service FPSO/FSO Market
Segment
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FPSO Demand Dip is Temporary | Page 4 Strategic Horizons
www.pfcenergy.com/members | [email protected] Beijing (86
10)6530-7010 | Houston (1 713) 622-4447 | Kuala Lumpur (60 3)
2172-3400
Moscow 7 (495) 797 3733 | Paris (33 1) 4770-2900 | Singapore
(65) 6407 1440 | Washington (1 202) 872-1199 PFC Energy, Inc. |
License restrictions apply. Distribution to third parties requires
prior written consent from PFC Energy
China and Brazil Increase Capacity
The Chinese FPSO construction industry comprises numerous
newbuild and conversion yards. Many are government-controlled and
focus on hull and integration work. Unlike the Singaporean or South
Korean yards, the small number of docks operated by each yard
severely limits the number of projects each can undertake.
Internationally, Chinese yards are much stronger in the conversion
than newbuild market. Chinese yards are beginning to secure higher
value projects, but are unlikely to threaten the Singapore yards in
the next 510 years.
Brazil has no experience building FPSO hulls, with Engevix
currently working on its maiden project and struggling to build
more units concurrently. Most indigenous yards focus on converting
hulls and integrating topsides.
Foreign joint-venture yards like Keppel BrasFELS and Maua are
the most experienced in FPSO conversions and can take on a wider
range of work. Process modules are usually fabricated in a module
fabrication yard, in part due to the Petrobras strategy of
tendering for the hull and module separately.