Feature: FPSOs go deeper in a buoyant market

The proven attributes of floating production storage and offloading (FPSO) vessels in developing oil deposits in offshore locations where ocean conditions are harsh or water depths are great are standing such units in good stead. Investments in the sector over the next five years are expected to be double those of the previous five as the oil industry seeks to develop new resources to compensate for dwindling outputs from established onshore and shallow water wells.

Of the 280 floating production units in operation worldwide, 187, or about two-thirds of the total, are FPSOs. The remainder, comprising primarily semi-submersibles, tension leg platforms and cylindrical spar platforms, tend to be utilised in less demanding offshore locations. The 43 FPSOs on order comprise three-quarters of the contracted floating production units.

An oil price of USD 50/barrel is acknowledged as the threshold beyond which it is commercially viable to develop offshore oil reserves in more difficult to access locations. Aside from a short-term blip following the September 2008 credit crunch, Brent crude has been consistently above the USD 50/barrel mark since 2005 and above USD 100 since 2011. With no indication of any notable drop in oil prices for the foreseeable future, the wind has been set fair for further investments in FPSOs.

Since the first FPSO was put into service in the 1970s, the floating production sector of the oil industry has benefited from the ability to convert an existing oil tanker for its new offshore utility role. Conversions represent a faster-track, lower-cost option than a newbuilding and today two-thirds of the FPSOs in operation are converted tankers. The current orderbook has a marginally higher percentage of newbuildings, due primarily to the need for purpose-built vessels in the harsh operating environment of the North Sea and the Petrobras advocacy of local content by having its new FPSO hulls constructed in Brazil.

The main cost item for an FPSO is the topsides oil-processing plant and equipment. As a result, both newbuilding FPSOs and conversions are of a scale of magnitude more expensive than a conventional tanker. While a hull might run USD 100-120 million, topsides plant necessitates expenditures of USD 500-600 million. Figures from Clarksons indicate that approximately USD 39 billion has been invested in FPSOs over the past five years, which is approaching the total spend on new tankers of all types and equivalent to about 10% of the global shipping orderbook.

The drive further offshore into harsher and deeper waters calls for a major commitment in terms of technology advances and investment. While oil output from deepwater locations is expected to remain a marginal proportion of overall global production, rising from a 7% share in 2012 to an expected 10% by 2017, development of these reserves requires a considerably higher capital expenditure than its shallow water counterparts. The share of the global offshore Capex accounted for by deepwater projects is expected to rise from 38% in 2012 to 53% by 2017.

Much of the growth in spending on FPSOs over the next five years will be centred on the “Deepwater Triangle” of Brazil, West Africa and the Gulf of Mexico. However, offshore areas in South East Asia, Australasia and Europe have been targeted for investment and deepwater developments off the coast of Israel and in the Caspian Sea are expected to feature more prominently. It is notable that approximately one-half the projects earmarked for Brazil, West Africa and the Gulf of Mexico involve production from ultra-deepwater locations where water depths exceed 1,500 metres.

Developments offshore Brazil are expected to lead the global deepwater market going forwards to 2017, with expenditures expected to centre around FPSO units ordered by Petrobras for the Lula and Franco pre-salt fields in the deep ocean east of Rio de Janeiro.

Now that the post-Macondo dust has settled in the Gulf of Mexico, there has been a renewal of interest in developing the region’s ultra-deepwater potential. Independent oil companies are leading the way with the new projects and the exploitation of the resources of the Stones and Appomattox fields is poised to be amongst the early initiatives.

In West Africa Angola is the subject of much of the current offshore activity. The country is likely to be responsible for about 50% of the Capex in the region in the shorter term as the Kaombo I and II and PAJ fields are developed. Later in the decade, however, efforts to develop fields off the coast of East Africa are likely to feature much more prominently. The potential of the Prosperidade complex offshore Mozambique is expected to draw particular industry attention and substantial expenditure.

Project developers offshore in South East Asia are gearing up for a busy time over the next five years. The good news is that the region’s seas are shallower and more benign than those of the Deepwater Triangle. New FPSO schemes for locations offshore China, Malaysia and Indonesia are scheduled to come on stream over the next few years. Oil companies are also pushing out into deeper Asian waters, including off the coasts of Myanmar, Sri Lanka and Brunei. Because the technical challenges are not so great, promoters of projects in Asia will favour the use of tanker conversions over FPSO newbuildings.

Although the North Sea is a relatively mature oil play, the region still holds potential for further development. The North Sea is not only the original harsh offshore environment but also the birthplace of much of the technology now being utilised to advance deepwater projects worldwide. This expertise is also serving as a springboard for the latest North Sea projects as they are located in even more remote and inhospitable waters.

Another area with good prospects is offshore North West Australia where fields such as Janz and Scarborough are expected to lead deepwater development spending. Oil companies are positioning themselves to quadruple the previous level of investment in the region in a bid to realise its oil and gas riches.

There are approximately 225 floating oil production projects worldwide now in the planning phase. While not all will materialise, of those that do about three-quarters will be FPSOs. Over the past 10 years new FPSO projects have been launched at an average rate of 15 per annum. The pace is set to pick up significantly over the next five years and industry watchers are predicting the sanctioning of 24 new FPSO orders a year as the most likely outcome over the period.
Source: BIMCO