The FPSO market – what tanker operators should know

Mar 26 2020


Three lawyers from London law firm Haynes and Boone LLP present an overview of what they see happening in the market for Floating Production Storage and Offloading (FPSO) vessels – which may provide opportunities for companies in the tanker sector. By Myles Mantle (partner), Teena Grewal (Counsel) and Danielli Pugliese (Associate), Haynes and Boone LLP, UK.

The global market for floating production, storage and offloading vessels (FPSOs) is recovering well from deep lows in 2015/2016 and is expected to perform very well, at least for the mid-term. 

 

Contracts for as many as 24 FPSOs are expected to be awarded worldwide in 2020, 7 of which are expected to be in Brazil. 

 

The remainder of the contracts are expected to be in other Latin America countries (5), Asia (4), West Africa (3), Europe (3) and Australia (2), according to a report published in August 2019 by Rystad Energy, an energy consultancy and business intelligence data firm.

 

Over the next five years, predictions are for orders of up to 67 floating units.

 

Expectations are for Brazil to keep first place with planned or announced awards for 21 FPSOs (to be deployed primarily by Petrobras), followed by FPSOs to be deployed offshore Angola (5), Nigeria and UK (4 each) and Norway (2), among others, according to a 2019-2025 global FPSO industry outlook report published by GlobalData, a data analytics and consulting company.

 

Brazil

For offshore areas characterized by rough weather, substantial water depths and a lack of existing subsea infrastructure, FPSOs represent an obvious “solution” to the problem of ensuring safe and continuous oilfield production.  

 

This is a particularly important factor for the Brazilian offshore market where the majority of fields proposed to be developed over the next 5 years or so are very far from shore and in deep and ultradeep waters.

 

In late 2019, Brazil’s oil giant Petrobras announced its plans to install at least 5 FPSOs to exploit surplus volumes from the Buzios pre-salt field in the Santos Basin, offshore Brazil and deploying one additional large FPSO per year in the field starting in 2024.

 

This is an example of the exciting scenario in Brazil, which is expected to account for almost 30% of all global contract awards for FPSOs in 2020 and many more FPSOs deployed throughout the next decade, a combination of several factors leading to an increasing five-year outlook of Brazil’s competitiveness score, according to an IHS Markit presentation held in late 2019, amongst others.

 

In particular

  1. Substantial oil discoveries in pre-salt fields offshore Brazil, driven to a large extent by Petrobras
  2. Recent and anticipated bid rounds for new exploration blocks
  3. International oil companies and more recently independent oil companies prioritizing the country, coupled with the lifting of the requirement for Petrobras to hold at least 30% of the pre-salt fields
  4. Policies including the extension of the Repetro special customs duty regime and the relaxation of its local content regulations
  5. The recovery from the country’s political turmoil and the Carwash corruption scandal.

 

Outside Brazil

Further demand is expected elsewhere around the globe. 

 

In the UK, 2 of the projects sanctioned in the North Sea in 2018 will require the development of new-build FPSOs and looking forward some of the larger North Sea projects are expected to use FPSOs. 

 

In Norway, where awards for at least 3 floating production vessels are projected until 2025, there may be further demand in the Barents Sea, where Equinor has already ordered its largest ever FPSO. 

 

There are also great prospects in West Africa, particularly in Angola and Nigeria, in the Eastern Mediterranean with the development of the Leviathan field in Israel and in South East Asia, particularly in Malaysia, where gas condensate and oil separation and processing facilities may be required.

 

Gas processing

An intriguing source of new orders to watch is the potential use of gas processing FPSOs lined up next to a liquefaction vessel.

 

Fitting both processing and liquefaction capabilities on the same platform can be prohibitively expensive and so floating LNG solutions could be better achieved by having a separate processing FPSO and liquefaction platform.  

 

This could potentially increase demand for FPSOs in stranded gas fields which lack gas pipeline infrastructure and where there is not enough gas to justify huge multi-billion dollar FLNG platforms.

 

Challenges

To meet such a growing demand presents some challenges. 

 

Firstly, financial market regulatory requirements and decarbonization initiatives in society are impacting the availability of capital from commercial banks, and this will be particularly acute with respect to crude processing and production with maybe less pressure on gas processing FPSOs (at least in the medium term). 

 

Banks need to consider how much risk they are willing to take on FPSO projects and for a particular region compared to other energy projects and thus financing is likely to be provided from a wider range of sources in the future.

 

Secondly, there are environmental concerns in frontier markets (both the difficulties of getting the relevant licences in a previously unexplored area and public pressure to keep those areas intact).

 

Thirdly, aggressive timetables for the construction of FPSOs and achievement of First Oil present a technical and commercial challenge.

 

In Brazil, for instance, Petrobras has an ambitious plan to reduce the period between discovery of hydrocarbons and first oil to 1000 days as opposed to a current market average of 1,900 days.

 

This puts extra pressure on owners to ensure a safe, technically robust FPSO is contracted, financed, designed, built and delivered in a shorter time frame and within budget.  This type of pressure has led some owners and operators to propose standardised hull and topside designs.

 

Despite some challenges, the global market for FPSOs offers exciting opportunities for players in the market.

 



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