Brazil - in for the long haul

Jun 30 2013


According to an economic report on Brazil, today's boom can be traced back to the 1990s when governments implemented a number of major reforms that helped modernise, stabilise and open up the economy.

High tariff barriers to protect domestic industry were replaced by trade liberalisation. Along with this, subsidisation of export agriculture was wound down. However, it was only with the introduction of the 1994 Plano Real and the currency devaluation in 1995 that inflation was finally brought under control, the report said.

An extensive privatisation process took place during this period, involving key sectors such as energy and telecommunications, which led to increased investment from abroad.

Brazil now has a sound banking system, large currency reserves, inflation under relatively good control, a large domestic market and well-diversified trade relations.

Recently, the Government put in place policies to actively combat the world’s economic crisis. But, a rising exchange rate contributed to a rapid slowdown, with growth of only 1% seen in 2012. Inflation is also thought to have slowed growth, having been at 1% above the target of 4.5% in 2012.

However, the latest economic indicators point to more business optimism, lower inflation and growth rising to 3.5% this year and 4% in 2014.

This is good news for the shipping industry and in particular for the tanker sector. Driving tanker demand in and offshore Brazil is the massive investment in oil and gas exploration and production, not to mention a long coastline and a large population.

Tankers are used for domestic consumption, as well as for products export to neighbouring South American countries and also crude oil further afield.

There are offshore fields located almost off the entire coastline with more to come, as in May the government’s licensing authority ANP awarded another round of E&P licenses further up the coast near the Amazon Basin.

Several major companies are involved, including BG Group, Statoil and the other worldwide oil majors, many of whom are in joint ventures with Petrobras.

As mentioned in the April edition, Petrobras, through its shipping subsidiary Transpetro/PROMEF, is in the middle of a huge tanker shipbuilding programme, which has been not without its problems in terms of late deliveries and a question mark over the quality of some of the vessels.

This project started in 2004-2005 and called for the construction of 49 tankers through 2020. They range from product tankers up to Suezmaxes and five have already been delivered at the time of writing.

In Phase 1 there were 26 vessels planned, including 10 Suezmaxes, five Aframaxes, four Panamaxes, four product tankers and LPG carriers. In Phase 2, there are four DP Suezmaxes, three DP Aframaxes, eight product tankers, five LPG carriers and three bunker tankers.

Initially, the yards called in South Korean builders to help with the technology, but they have given way to the Japanese giant IHI amid rumours of poor quality vessels and late deliveries. Tanker Operator was told by Petrobras and other companies visited during a recent trip to Brazil that the local shipbuilding industry must be competitive and quality driven to succeed.

In May of this year, Transpetro officially announced that it had signed the addenda for the resumption of the purchase and sale agreement for 12 vessels commissioned from the Atlântico Sul Shipyard (EAS), which had been suspended since May 2012. “The shipyard has met all of our requirements in order to continue building the vessels, which are part of the Fleet Modernization and Expansion Program (PROMEF),” Transpetro said in a statement.

The resumption of the agreements took place two days after the ceremony that marked the maiden voyage, in Suape, Pernambuco State, of the Suezmax Zumbi dos Palmares, which EAS delivered to Transpetro.

 

IHI assistance

Transpetro confirmed that the Pernambucan shipyard will get technical assistance from Japanese concern IHI Marine United, which has agreed to provide the designs for the 12 vessels for which the agreements had been suspended, as per the specifications stipulated under the purchase and sale agreement.

The designs for the first series of 10 Suezmaxes were provided by Samsung, which is no longer the yard's technology partner. This led to Transpetro suspending the 12 orders until EAS submitted a new partner to meet international standards.

Of the 49 vessels ordered from Brazilian shipyards, five vessels entered into operation within an 18-month period - the Suezmaxes João Cândido and Zumbi dos Palmares built by EAS and the products tankers Celso Furtado, Sérgio Buarque de Holanda, and Rômulo Almeida, commissioned from the Mauá shipyard, in Niterói. The third of 22 vessels to be delivered by EAS, the Dragão do Mar will be delivered later this year.

"The Brazilian shipbuilding industry is gaining traction, overcoming the learning curve at an accelerated rate. In fewer than 18 months, Zumbi dos Palmares is already the fifth vessel delivered. PROMEF is on track, making a critical contribution to the consolidation of the Brazilian shipbuilding industry, a strategic sector for the country, with great capacity to generate jobs and economic development.

“Today, Brazil has the third largest order portfolio in the world, and, therefore, it already has sufficient scale to gradually increase its level of productivity and to be internationally competitive,” said Transpetro CEO, Sergio Machado.

In March of this year, Machado had delivered a speech taking stock of Transpetro’s experience with PROMEF and warned that the search for knowledge and productivity is fundamental for the sustainability of the Brazilian shipping industry.

“In our experience with shipbuilding, we have realised that there is a series of challenges that the shipyards face to reach levels of international productivity. Investment in management, qualification and technology is needed,” Machado had said.

“We have taken an industry (shipbuilding) in inertia and it is normal to have mishaps at the beginning, but with a focus on productivity, we will reach the third premise of the programme, which is to achieve international competitiveness,” he said.

In May, at OTC in Houston, plans to build a centre of excellence for the shipbuilding industry in Brazil were highlighted in a presentation made by Paulo Sergio Rodrigues Alonso, Petrobras’ local content advisor to the president and the executive co-ordinator of Prominp (National Mobilisation Programme of the Petroleum Industry).

Alonso stressed that the biggest challenge today is to push the pre-salt exploration and production (E&P) forward into the shipbuilding industry and the shipyards. "NASA's slogan is well-fitting in this situation 'Failure is not an option'. We are working with the shipyards so that we can meet the demand and stay on track with the schedule defined in our business plan, they cannot fail.

“There are many challenges in achieving a benchmark in the shipbuilding industry, and partnerships with international companies and universities are absolutely essential,” he said.

 

Local content

The local content under Brazilian law in Petrobras' E&P operations today is between 55% and 65%. "For the other 35% we need the support of international companies, so we can develop our projects. We understand that the association with international companies is the best solution for technological bottlenecks, in addition to working in partnership with universities to achieve long-term results," he explained.

Alonso highlighted the growth in demand for goods and services for the shipbuilding industry over the next five years. "All Petrobras’ contracts are based on international standards, so we know the cost of the equipment and services within the project."

The executive also highlighted Petrobras local content policy and the importance of the Brazilian shipbuilding industry's growth. "While oil and gas production continues to grow with the development of the pre-salt, investment opportunities and partnerships in the sector will continue to grow for investors in the entire oil supply chain. Due to the operations in the pre-salt and the magnitude of our business plan, perspectives and specifics of deepwater exploration, we cannot use offthe- shelf equipment, we need to develop technology and equipment to meet this demand.

"International companies interested in establishing themselves in Brazil are welcome and will work in partnership with Brazilian companies, or even by themselves", Alonso concluded.

Ronaldo Martins, Petrobras’ manager of supplier relationship management said that Petrobras began to focus more on the Brazilian industry and the expansion of local content for goods and services in the 1960s, when some imported material started to be substituted.

Over the last five years, more than $240 bill was invested in Petrobras' operations, resulting in great opportunities for companies that want to work with the company: "These companies need to understand our needs, understand how we do business, the technical requirements and the environment that surround those needs and the supply strategy that we are outlining for our largest suppliers," Martins said.

"There are great market opportunities for companies that are already set up in Brazil providing services and engineering, as well as for those that are interested in investing in Brazil. To develop our portfolio, we are looking to establish partnerships and to do long-term solid businesses with companies that want to invest in Brazil," he concluded.

One of the major problems envisaged is the lack of repair facilities to handle large tankers. The Brazilians are trying to attract overseas investors willing to set up shiprepair yards in the country. When a large tanker becomes due for a scheduled drydocking, Transpetro tries to fix the vessel for a spot charter carrying crude from Brazil to Singapore, or China.

At present, Transpetro, the shipping arm of Petrobras, operates up to 250 tankers per day and owns around 60. The Suezmaxes and Aframaxes mainly cater for the export cargoes.

There is no doubt that despite the problems, the vessels will come and will be needed. Many of the offshore fields are being served and will be served by an increasing number FPSOs, which in turn are serving shuttle and conventional tankers with more to come.

The interesting question here is the different types of tankers used for offshore loading operations. Some shuttle tankers have been converted to and are being built fitted with DP2 thrusters, while others just rely on offshore support vessels to hold them in place while loading from a single point mooring buoy, or an FPSO.

Teekay recently purchased the Remora HiLoad system, which is a self-propelled floating docking system. It is attached to the side of a tanker to load the vessel through pipelines/hoses. The first docking system has been chartered to Petrobras who will use the HiLoad to load tankers at several FPSO's in the Campos Basin, Espirito Santo Basin and later also in Santos Basin.

The use of a HiLoad system means that conventional tankers can load directly from a spread moored FPSO offshore Brazil. According to a Remora spokesman, this is very attractive for long haul export cargoes. DP shuttle tankers may still be used for short transportation in the domestic market in Brazil, he said.

In Brazilian waters, ship-to-ship transfers are banned meaning that all transfers have to be conducted using a pipeline from a floating unit, or from a fixed terminal. Again there are different methods used.

 

Conventional tankers

On some fields, such as Statoil’s Pellegrino Field, owned 60% by the Norwegian oil major and 40% by Sinochem, conventional Aframaxes are loaded from a BW Offshore managed FPSO via the amidship manifolds, whereas in other fields, the bow loading system is preferred with purpose-built, or converted shuttle tankers.

Statoil currently charters in about nine conventional Aframaxes from Teekay and Sovcomflot to export oil from the field. The charter periods vary from between two, three and five years. Every vessel must deliver a statement of compliance under the ISM Code to the Brazilian Navy and are vetted by Statoil.

The company explained that by using a conventional tanker held in position by an offshore vessel, costs can be halved when compared with a DP2 type shuttle tanker operation.

The Pellegrino FPSO weathervanes, hence the need for an OSV to keep the tanker on station during loading operations. Apart from the cost differential, a DP2 type tanker would also pull against the FPSO’s motion when weathervaning, Statoil explained. The conventional tanker can be detached from the loading operation in about 20 minutes in an emergency, or the approach of bad weather.

The line masters have around 10 year’s experience having come from the North Sea and have been trained at the Trondheim simulation centre. The average cargo loaded is around 650,000 barrels and about 60 operations were carried out between June 2011 and August 2012. The tanker’s 15 tonne SWL ship’s derrick/crane is used to handle the hoses.

Opened in 2003, the ocean technology laboratory in Rio de Janeiro - Lab Oceanocomplete with the world’s deepest test tank has completed around 50 model tests on a variety of offshore scenarios. During Tanker Operator’s visit it was working on a project for SBM Offshore. The laboratory makes use of computation fluid dynamics (CFDs) and has a manoeuvring ship simulator.

Tank tests have been undertaken on DP thrusters for Petrobras to calculate the difference between a DP2 type shuttle operation and one involving the attachment of an OSV astern of the tanker while offloading from an FPSO, or a buoy.

Petrobras also operates the Cascade Chinook Field in the Gulf of Mexico and was the first offshore production concern to operate an FPSO in the area, which tranships oil to Jones Act shuttle tankers- another first, the company claimed.

Companies involved in the production offshore Brazil prefer large hulled FPSOs, such as converted VLCCs. Indeed, leading FPSO independent owner SBM told Tanker Operator that at present the company buys two or three VLCCs per year to cover potential FPSO projects. Of course it helps when the market is rock bottom and a 2000- built double hull VLCC can be picked up for around $20 mill, which is a mere drop in the ocean when considering the overall investment in a field, or even an FPSO conversion project.

There are problems for outside companies operating in Brazil, but many have decided to accept the many local rules and regulations, as the upside potential is huge. For example, a company cannot set up shop in Brazil without a local partner and if thinking of building a vessel in Brazil, around 65% of the vessel must contain what is called ‘local content’. The actual percentage tends to depend on the type of vessel and its trade.

For the future, Petrobras is examining the possibility of using FPSOs as power plants for subsea equipment for processing oil and thus reducing their production capacity. The company has a plan on the drawing board to relocate the topsides to the seabed from where they will be connected to an FPSO on the surface for storage and offload purposes.

Petrobras said that it favoured FPSOs, due to their greater stability, large deck space and probably of greater importance is that they come cheaper than semi-submersible drilling rigs and drill ships.

To cope with the logistics of developing these offshore fields, some of which are more than 300 miles offshore, Brazil is looking to develop large ports and supply hubs, some of which could be located offshore. Dutch concern Damen is looking into the hub concept, which could take the form of a man-made island located between the land and the field.

Brazil is also building shipyards along the coast to construct rigs, FPSOs, tankers, supply vessels and tug/barge combinations, which will be used on its vast waterways. Whether some of these yards will ever work at full capacity remains to be seen. Once the Brazilian newbuilding boom is over circa 2020, there are plans to market the yards to other South American shipowners, once the continent becomes fully developed and the yards fully competitive.

Of course, none of this expansion is possible without the presence of the equipment manufacturers/suppliers and the service sector players.

Despite, the problems associated with overseas companies operating in Brazil, it has not stopped some of the world’s largest concerns from investing time, people and money in setting up shop in the country. For example, the Rio de Janeiro office of DNV said that it advised companies to take the long term view when considering setting up shop in Brazil, as the local labour laws can be cumbersome.

The classification societies are well represented looking after the FPSOs and other offshore vessels, including semi-submersibles, jack-ups, drillships and the hundreds of OSVs and other service craft.

ABS, for example, evaluated Teekay’s HiLoad system and is looking at various other complex engineering projects, including the use of DP1, DP2 and DP3 enabled vessels. The class society said that it is in discussions with Petrobras regarding an additional notation. One of the advantages of the vessels fitted with dynamic positioning systems is a high level of redundancy, ABS said.

One of the projects being undertaken with ABS’ Brazil Offshore Technology Centre (BOTC) is FPSO life extension. ABS has classed around 20 FPSOs operating offshore, which have remained on station for around 10 years of which five or six are coming to the end of their working life.

 

FPSO lifecycles

Discussions are centred around the number of years an FPSO hull can last before the need for drydocking. The aim is to issue guidelines as to how to undertake a lifecycle extension programme on site. Design assessments are being planned for their bilge keels and external riser supports. It also includes a satellite project on corrosion rates, addressing coatings, gaugings and maintenance. The life cycle extension programme is being undertaken in co-operation with FPSO owners and operators, ABS told Tanker Operator.

Taking ABS as an example of the growth of the service sector in Brazil, in the late 1990s, only six people were employed. Today, there are more than 200 employees and 60 contractors.

Similar to many companies visited by Tanker Operator during a trip to Brazil, DNV highlighted the problem of a lack of experienced technicians in the shipping and offshore sectors in the country.

To try to overcome this problem, the Norwegian class society offers technology courses for shipyards in several disciplines, including welding.

Similar to ABS, DNV is heavily involved with the offshore sector and claims to be the main classification society operating in the pre-salt E&P projects offshore Brazil.

DNV also claims to be number one in classifying floating production unit newbuilding and conversion projects and the market leader in classifying the shuttle tankers operating in the area, due to its expertise in dynamic positioning rules and guidelines.

The class society has also certified the LNG regasification terminals in operation in Guanabara Bay and at Pecem, using Golar LNGRVs and another under construction at Salvador. A fourth land-based storage facility at Espiritu Santo to handle liquefaction, as well as regasification, is at the FEED stage, DNV said.

 

Manufacturing

Leading power generation and services concern Wärtsilä has started to build a new fully-owned manufacturing facility in Brazil to meet the increasing market demand, particularly in the offshore market, in a total investment of €20 mill.

The manufacturing premises will be based on a multi-product factory concept for the assembly and testing of Wärtsilä generating sets and propulsion products. In the initial phase, activities will focus on medium sized, medium speed generating sets and steerable thrusters, with the possibility to flexibly expand the product range to respond to market needs.

"Wärtsilä's global strategy is to be close to its customers. Our presence in Brazil is now further strengthened to respond to the ongoing demand for Wärtsilä power solutions, and to meet the set local content requirements," said Björn Rosengren, president & CEO of Wärtsilä Corp, when announcing the plan.

The new manufacturing plant will be located some 300 kilometres north of Rio de Janeiro in the Açu Superport Industrial Complex. The construction of the 4,000 sq m plant, with its own waterfront and quay, was due to start in April 2013 and it is scheduled to be fully operational by mid-2014. The new delivery centre is expected to employ close to 100 people.

In addition, Wärtsilä, opened a new service workshop in Niterói, Rio de Janeiro, Brazil at the end of February this year. The new facility enables Wärtsilä to offer a wide range of workshop services with rapid response times, the company claimed.

The new workshop replaced the company's premises in São Cristóvão, Rio de Janeiro, and was designed to bring logistical advantages for the company and its customers.

With 4,600 square meters of built area, the workshop is claimed to be the largest of its kind in the state of Rio de Janeiro. It features, among other things, a laboratory for automation and electronic fuel injection, as well as a dedicated marine thruster facility.

"The location is strategic, both for receiving components as well as for our deliveries, as Niterói is a hub for offshore services in Brazil. This upgraded facility enables us to support our customers even better and service the increased number of installations, as predicted by our customers, as well as by the oil exploration industry of Brazil," said Robson Campos, Wärtsilä Brazil managing director.

At Niterói, the company is able to provide services on a 24/7 basis, thus doubling its operational capability status. The scope of services was also expanded to include repairs to large engines and the maintenance of propulsion systems for ships. "Propellers can weigh up to 80 tonnes. We have invested in the equipment needed to service such very large components in the most efficient and safe way," Campos said.

About 200 employees are working in the new workshop, 120 of whom are able to work offshore. The team is connected to Wärtsilä's worldwide technical support system and joins a network of international technicians able to support local projects worldwide.

Campos also claimed that the local company was the only one with a 2-stroke diesel engine license in Brazil and could offer full turnkey projects and those involving other OEMs. “In seven years, the business will double on the back of oil production,” he said during a presentation to Tanker Operator in Rio de Janeiro.

He said that local service and manufacturing growth will be seen in propulsion, thrusters, engines, electrical services, automation, plus training centres for shipyards and operators.

At present Wärtsilä will concentrate on the local manufacture of thrusters and generating sets and expected a lot of future business from the company’s tie-up with Hamworthy. He also thought that gas powered vessels will come in Brazil as a dual fuel option, but that the uptake would not be as quick as seen in Europe.

Transpetro’s newbuilding Suezmaxes will be fitted with MAN B&W 2-stroke diesel engines, generator sets and Hamworthy pumps and the company has signed a full service/maintenance agreement with both Transpetro and Petrobras for Wärtsilä equipment for 30 tankers, but will also service other OEMs, Campos explained.

Both Wärtsilä and subsidiary Hamworthy are heavily involved in the FPSO programme and agreements have been signed with SBM and MODEC for electronics and automation systems projects. The projects can be pre-engineered.

 

Suezmaxes

On 20th May, 2013, MAN Diesel & Turbo representatives attended the delivery ceremony of the Suezmax Zumbi dos Palmares. Powered by an MAN B&W 6S70ME-C type prime mover and three MAN 7L23/30H auxiliary engines, the vessel is the second Suezmax built by EAS stemming from the Brazilian Government’s PROMEF shipbuilding programme.

“We are proud to participate in this new chapter of Brazilian shipbuilding history”, said Lincoln de Sousa, diesel division director of MAN Diesel & Turbo in Brazil who also attended the ceremony.

He continued: “We want to congratulate Transpetro on the successful launch and are confident that our engine will contribute to a successful working life for the new tanker. To this end, we have already trained some of the Zumbi dos Palmares crew on various aspects of the engine’s operation at our MAN Primeserv Academy in Rio de Janeiro.”

Some 28 Transpetro tankers are to be fitted with MAN B&W 2-stroke prime movers, the largest of which will have an output of 22,000 hp.

Immediately after the ceremony, the tanker sailed on its maiden voyage, departing Atlantico Sul in Suape for the Campos Basin.

Another major supplier heavily involved in Brazil is ABB. This power and automation group is providing the electrical installations on board Transpetro’s newbuilding products tankers. The company’s oil and gas division is handling the service contracts for the FPSOs.

The company recently won a $160 mill contract to supply the electrical systems for seven drillships, which are to be built in Espirito Santo by Estaleiro Jurong Aracruz, a wholly-owned yard in the Jurong Group of Singapore.

The vessels will be delivered to Sete Brasil, a company formed by Brazilian and international investors from 2015 through 2018. Following their delivery, they will be operated by Seadrill and Odfjell and chartered to Petrobras for 15 years.

Last year, ABB’s Sorocaba plant started operations to manufacture motors, generators, drives and other low voltage equipment for use in the marine industry.

Rolls-Royce Marine also has expansion plans in and around Rio de Janeiro and at its Santa Cruz facility being built some 50 km Southwest of the city.

These include a marine thruster and diesel generator sets assembly and test plant, which will be fully committed to Brazil’s local contents laws and a marine training and simulator centre similar to those operated in Norway and Singapore, following Kongsberg’s lead in Brazil.

RR said that that it was also committed to generating a highly skilled local workforce. For example, the local workforce does not have the skill to service, or operate DP systems. The simulation will connect navigators and engineers who will work as a team.



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