Floating production growth continues into 2003

Dec. 1, 2002
The year 2002 has been a rather disappointing one for the oil companies and their contractors, but the perspective for next year looks better.

Dominic Harbinson,Douglas-Westwood Ltd.
Dr. Roger Knight, Infield Systems

The year 2002 has been a rather disappointing one for the oil companies and their contractors, but the perspective for next year looks better. The hangover from the events in the fall of 2001 and the bursting of the dot-com stock market bubble, coupled with the accounting and other scandals that have hit at the fundamental grass roots of the way business is conducted in a large part of the world should now be put behind us, and a more positive and optimistic outlook take its place.


Before looking to the future, it is important to look at the past, where the groundwork was laid for floating production systems. The floating production sector came into being in 1975 with the installation of the North Sea Pioneer, a converted semisubmersible drilling rig, on Hamilton Brothers' Argyll field in the UK sector of the North Sea.

Initial floating production system (FPS) applications tended to feature fairly small units deployed on marginal fields where the water depth and uncertainties as to the volume of recoverable reserves meant that development using a conventional fixed platform solution was too commercially risky. Nowadays, FPSs are used for a very wide range of offshore developments in all water depths and environments, and the FPS concept has proved to be a cost-effective method of developing both marginal and world-class offshore fields worldwide.

Four main types of FPS have been deployed in different parts of the world:

  • Floating production, storage, and offloading vessels (FPSOs)
  • Floating production semisubmersibles (FPSSs)
  • Tension leg platforms (TLPs)
  • Spars

Production barges have also been deployed in the benign environments of the Asia-Pacific and West African regions.

Based on identified historic and planned/possible FPS projects, expansion of the world's floating production fleet has been particularly rapid over the past decade. Although the oil price depression in the late 1990s had a noticeable effect on installation activity in the years 2000 through 2002, current indications are that the market is recovering and poised for strong growth over the period to 2006.

According to the Infield database, by 2Q 2002 there had been 204 FPS installations in the various regions of the world. Of these, more than 130 are currently installed and operational. Including the current year, some 150 FPS projects are under development or under discussion for the period to 2006. Delays encountered with one project could, however, have knock-on effects with later projects, thereby reducing the overall numbers, as could the substitution of subsea tiebacks for floaters in areas of growing infrastructure.

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To date, Northwest Europe has seen the most installations, followed by the Asia-Pacific region and Brazil. Over the period through 2006, the Asia-Pacific region, and the "Golden Triangle" of Brazil, West Africa, and the US Gulf of Mexico are likely to see the most action.

Floating production systems

FPSOs (ship-shaped vessels) dominate the global floating production scene. To date, there have been over 100 FPSO deployments worldwide – more than all the other floating production systems (FPSSs, TLPs, and Spars) put together. The largest fleet of operational FPSOs is located in the Asia-Pacific region, followed by Northwest Europe and West Africa.

Production semisubmersibles (FPSSs) have a long history and have proved particularly popular off Brazil, where national operator Petrobras has been developing the country's extensive deepwater reserves. TLPs, and more recently, Spars have proved the production system of choice in the Gulf of Mexico.

The GoM is the only major producing region of the world where FPSOs have not been deployed. The absence of FPSOs in this region can be largely attributed to two factors:

  • The existence of a well-developed export pipeline infrastructure for delivering prod-uction to shore, which has, to date, minimized the attractiveness of the offshore storage capability FPSOs provide
  • Regulatory concerns regarding the ability of FPSOs to survive the region's hurricanes and the perceived risk of environmental impact arising from offloading operations.
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One significant factor could change this picture. As offshore activity advances into deeper waters that could be up to 350 km from shore and far removed from any export infrastructure, the pressure to introduce FPSOs has become stronger. It is possible that the 2002-2006 period could see the first regional application of this technology.

2003 outlook

Though activity in 2002 reflected some negative world events and their repercussions, the year 2003 shows a positive and optimistic outlook for the industry. For instance, the installation of two floating production platforms in the GoM this year could be tripled next year if all goes well. But optimism should be guarded. Few projects, at the moment, are running on time or within budget, as the major contractors have not been slow in telling us. So which way will the future pan out?

Off West Africa, the first of ExxonMobil's three "generic" FPSO projects is being made ready for deployment. This is to allow the early production phase of the Yoho field off Nigeria to start up. A second floater will shortly follow. The FPSO will be on the Zafiro field cluster just over the boundary with Equatorial Guinea as part of that field's southern extension project. Thirdly and lastly will be the first floater to start production on the ExxonMobil's operated Angola block 15, which will go in on the Xikomba field in the second half of next year.

In Brazilian waters, FPSO projects are to be brought onstream on the Bijupirá-Salema project, which Shell has taken over from Enterprise, and on the giant joint development of Petrobras' Barracuda and Caratinga fields, where the recent accident to the P-34 prematurely halted the pilot production scheme. Another accident victim, Ronc-ador field, is being brought back into production via another ship-shaped vessel, and Albacora Leste seems finally to moving forward again.

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Meanwhile, a series of truss Spars, two TLPs, and one giant semisubmersible are in various stages of construction for installation in the deep waters of the GoM in the coming year.

$32 billion in capex through 2007

In The World Floating Production Report published earlier this year, Douglas-Westwood forecast that 134 floating production systems would be installed worldwide over the 2002-2006 period. This forecast is based on analysis of the 147 installation prospects listed on the Infield database for the period.

The expectation is for FPSOs to account for the largest proportion of FPS-type system installations (91 vessels), along with 14 FPSSs, 15 TLPs, and 14 Spars. Within the FPSO segment, 35 conversions and 32 upgrades/redeployments are forecast. Global capex in the FPS sector is forecast at $32 billion.

A 10-year view helps to clarify market trends. The overall picture is one of strong market growth from 2002 onward, with annual global expenditure in the sector rising from an estimated $2.1 billion in 2002 to reach $8.3 billion in 2006. The peak recorded in 2004 is a result of the installation in that year of a number of deepwater projects off Brazil and West Africa, plus such platforms as the Thunder Horse deepwater project in the GoM.

FPSOs represent by far the largest segment of the market, accounting for 65% of the forecast capex. The numbers and associated capex of the other three FPS types (FPSSs, TLPs and Spars) show a fairly even distribution, with annual expenditure in each segment coming close to the billion-dollar mark toward the end of the period studied.

Supply and demand

On the demand side, four main drivers can be identified for the continued growth of the FPS sector:

  • The industry's move into deepwater areas
  • Continuing expansion in the use of subsea production technologies
  • Exploitation of marginal fields
  • Growing emphasis on fast-track and/or phased developments.

On the supply side, the influence of globalization is already apparent, but is likely to be somewhat offset by national insistence on local content in the delivery of floating production systems and other components of offshore developments generally. A number of innovative FPS concepts have been proposed, and some of these may see their first applications in the next five years.

In addition, an active leasing market has emerged in the FPSO segment in particular. The use of converted vessels, predominantly tankers and semisubmersible drilling rigs, is expected to continue. The redeployment of modified/upgraded vessels, especially in the FPSO segment, is likely to play an increasingly important role as well in meeting the growth in market demand.

Regional markets

In regional terms, West Africa and the Asia-Pacific region account for half of the 134 vessels forecast for installation over the 2002-2006 period. The GoM is the next most important region in terms of the numbers of units forecast, followed by Brazil. Meanwhile, the FPS market in Northwest Europe is showing evidence of decline from the relatively high levels of installation activity and expenditure recorded over the previous five-year period (1997-2001).

In terms of market value, the world's three major deepwater regions – West Africa, the GoM, and Brazil – should account for 70% of global capex in the FPS sector. West Africa heads the parade with an estimated 35% of the global market spend.

The importance of the West African region within the FPS sector is due almost entirely to the wave of deepwater projects moving forward for development over the period. In the next two most important regions – the GoM and Brazil – deepwater is also a key influence on the forecast market growth.

The dynamic nature of the FPS market in the US Gulf and the speed with which FPS projects (especially those involving small Spars and mini-TLPs) can be turned around there, mean that the region has strong potential for upside. Consequently, our forecast of 24 FPS installations in the region over the period to 2005 could well prove conservative.

The relatively benign environments and shallow waters in which most of the FPS projects in the Asia-Pacific region are located enable cheaper FPS solutions to be adopted. Thus, although the region has more FPS units forecast for the period, the associated capex in this region is lower than that forecast for the GoM and Brazil, for which higher specification vessels are required.

Author's Note: The World Floating Production Report II 2002-2006 is published by Douglas-Westwood/Infield Systems. For further details visit www.dw-1.com, e-mail [email protected] or call +44 (0) 1227 831879.