Report: Floating production market shows signs of recovery

Nov. 19, 2020
In its 2021-2025 Floating Production Systems Outlook Report, Energy Maritime Associates analyzed the activity in 2020 and how the COVID-19 pandemic and subsequent crash in oil prices has affected the market.

Offshore staff

SINGAPORE – In its 2021-2025 Floating Production Systems Outlook Report, Energy Maritime Associates (EMA) analyzed the activity in 2020 and how the COVID-19 pandemic and subsequent crash in oil prices has affected the floating production market.

According to the report, only six new floating production units have been awarded year to date, down from 17 awards in 2019. These new awards are for three FPSOs and three FSRUs. One award, an FPSO for Aker Energy’s Pecan development in Ghana, was canceled at the onset of the pandemic.

However, the analyst said activity shows signs of recovery. Petrobras and its partners awarded the Mero 3 FPSO to MISC in August. Petrobras is in discussion with SBM Offshore for the sixth Buzios FPSO. This indicates that after a pause and reset, the market is beginning to move again.

The report noted that 15 units were taken offline, three were immediately sent for recycling and 12 are still available. These units could be redeployed, but based on their ages will most likely head for recycling.

Also, 53 units are currently idle, with a number having been stacked over five years. EMA estimates that at least half will be recycled.

New units on order are trending toward FSOs for LNG and storage. There are 62 units on order, comprised of 48 FPSs, 11 FSOs, and three MOPUs. Activity is increasing in Europe for major life extension projects. Activity is also increasing in Korean shipyards particularly focused on LNG projects. China is the dominant player for newbuild and conversions, including all projects headed for Brazil.

As for the impacts of COVID-19, the report found that only one project has been canceled (Pecan FPSO in Ghana), but many have been delayed on average six-12 months. The factors driving delays are level of completion, the location of the project (and the impact of COVID in that country), and financing (mainly impacting cashflow due to the oil price crash).

Contractor resources are shrinking, but project complexity is growing. While MODEC and SBM Offshore are the dominant FPSO players in the Brazilian market, there have been new entrants with awards to Yinson (Marlim 2) and MISC (Mero 3).

The analyst is tracking 200 projects in the planning pipeline. Projects are becoming stuck in the appraisal and planning phase because they are not economically viable under the current schemes. This presents an opportunity for future acquisition and divestiture where companies can potentially swap assets and focus on regions or hub. It also opens opportunities for smaller independents to take over projects that larger companies are unable to develop economically.

As for market drivers, the analyst sees a large trend of “drill to fill” areas where operators are trying to maintain production through current assets. New wells can potentially be tied back to existing units with minimal cost and shorter payback. There will still be demand for new floaters for very large fields and for areas without existing hubs, particularly in South America and both sides of the Gulf of Mexico.

It also forecasts demand for 70-150 new FPS orders over the next five years. Brazil is the dominant location, followed by Africa, then other South American fields off Guyana and Suriname. This is down from last year’s forecast, primarily in 2021-2022 as the market recovers.

Regarding FPSO types and trends, EMA sees an increase in the number of newbuild units, particularly for very large units. Standardized hulls such as MODEC’s M350, SBM’s Fast4Ward, and others are gaining interest due to their ability to reduce costs and time to first oil. At the other end of the production spectrum, the analyst expects a rising trend for redeployments to develop marginal fields due to the number of available units.

Finally, the analyst sees a growing number of mega units (more than 200,000 boe/d) and smaller units (less than 100,000 boe/d), leaving fewer units in the middle space. Field operators are becoming more focused at one end of the market, as they require vastly different skills.