Oil price will dictate subsea market growth

Aug. 22, 2019

Offshore staff

OSLO, Norway – The subsea market in 2019 will experience year-on-year growth for the first time since 2014. But the positive outlook is vulnerable to any significant decline in oil prices over the next few years, according to analyst Rystad Energy.

Henning Bjørvik, an analyst on Rystad Energy’s oilfield service team, said: “We expect the subsea market to thrive during the coming years, but market growth will be at risk if the oil price falls to $50/bbl.”

The firm has analyzed the outlook for global subsea segments in the coming years. Development this year is essentially locked in with brownfield opportunities and already sanctioned projects. However, the oil price will dictate growth moving forward.

In a $60 to $70 oil environment, the subsea market is poised to grow around 7% annually up to 2025, Rystad claimed. But a significant portion of this activity is at risk if the price of Brent crude falls to $50/bbl. According to the firm, prices at that level would still be enough to support 5% annual growth in the subsea market through 2022, but after that the growth rate could fall to zero.

“Although we expect the subsea market to have one of the highest growth rates within oilfield services, the segment is also more vulnerable to an oil price drop than the oilfield services market in general. We see significant risks in terms of subsea spending as well as growth,” Bjørvik said.

Segments with especially high exposure to greenfield activity, such as the subsea equipment and SURF (subsea umbilicals, risers and flowlines) segments, are at risk of having growth slashed by almost 5 percentage points per year. The oilfield services market exhibits around 3 percentage points growth at risk over the same timeframe.

From 2019-2025, close to 20% of spending in the subsea equipment and SURF segments is at risk, while around 10% of general oilfield services market spending is at risk should the oil price fall from the base case estimate to $50 bbl.

The analyst pointed out that Brazil has several projects with breakeven prices around $50/bbl.

Spending at risk is largely dominated by floater projects globally, but Norway is manifested in subsea tieback projects. No less than 16 projects with subsea expenditure between 2019 and 2025 are at risk on the Norwegian continental shelf, 14 of which are subsea tieback projects, the analyst claimed.

“It is worth mentioning that operators have had a remarkable ability to cut costs during downturns, much helped by the oilfield service industry,” Bjørvik said. “Should a lower price environment again become reality, we can be assured that the industry has a proven track record of survival and ingenuity.”