Monday, 18 November 2019

Finance News

Strong Outlook for Investment in Floating Production Projects

Around $90 billion will be spent on construction and conversion of floating production systems over the next five years. This forecast, just completed by World Energy Reports, reflects the strong underlying market drivers supporting future investment activity in the deepwater sector.

The offshore industry is coming out of the worst downturn it has ever seen. Five years ago, the entire deepwater supply chain was hit by a tsunami. Oil prices collapsed, Petrobras imploded, production floater orders dried up, backlog disappeared. But production floater orders are now rebounding and the outlook is promising. While many upstream operators have cut back on capital spending, the need for reserves replacement will soon force budgets to rise. Meanwhile the breakeven price on deepwater projects has fallen greatly and new projects offer very attractive return on investment.

According to Jim McCaul, head of IMA/WER, “new deepwater projects planned in Brazil, Guyana, West Africa, GOM, elsewhere ensure that deepwater will continue to supply 8% to 12% of world oil demand over the next 20+ years. While tight/shale rock development will continue to compete with deepwater for upstream capital resources, most low hanging productivity breakthroughs in tight/shale rock projects, including use of tighter spacing to maximize footprint output, have now been realized. And while tight/shale productivity gains are slowing, more cos- effective ways to deepwater development are keeping a lid on project costs and breakeven price.”

WER’s annual five-year outlook report published this week examines these and other key factors driving future production floater orders. We examine future oil and gas prices, risk of future supply disruption, upstream capex budgets, cost of capital for floating production projects, impact of EPC/leasing contractors' capacity constraints on FSPO ordering pace, Brazil’s moves to attract foreign investment, potential Petrobras privatization, etc. In our forecast we look in detail at future orders for FPSOs (floating production, storage and offloading vessels), FPUs (production semis, spars, TLPs, barges), FLNGs (floating liquefaction plants), FSRUs (floating storage and regasification units) and FSOs (floating storage offloading vessels).

McCaul said “we see the underlying market drivers supporting growing investment activity in the floating production sector over the next five years. In our most likely scenario we expect orders for 61 FPSOs/FPUs, 6 FLNGs, 20 FSRUs and 20 FSOs between 2020/24. Our 2020 forecast is up from last year, reflecting the strong underlying market conditions.”

We aim to keep you updated weekly with relevant information concerning the Offshore Energy Sector.

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