Capital Expenditure for FPSOs to Rise 49% Despite Downturn

Despite the current global downturn in the crude oil market, which has led to industry wide reduction in capital expenditure (Capex), Douglas-Westwood has predicted in a new report that the capex for Floating Production Storage (FPS) units would rise to $68 billion between 2015 and 2019, representing an increase of 49 per cent to the amount spent on FPS units from 2010 to 2014.

Douglas-Westwood said in the report titled, “World Floating Production Market Forecast 2015 – 2019” that despite the Capex growth over the forecast, the volume of orders seen in 2015 had been very weak.

During 2015-2019, two Floating Production Storage Offloading (FPSO) vessels are being built for Total’s Egina project offshore Nigeria and Kaombo offshore Angola, with combined capacity of over 400,000 barrels per day.

Italy’s ENI is also said to be planning a Floating Liquefied Natural Gas (FLNG) offshore Mozambique during the period.

The 2010- 2014 period witnessed very high crude oil prices, and this development resulted to the planning of many field development projects, which account for the high number of floating units planned to be built between 2015 and 2019.

However, 2015 is characterised by very weak orders due to low price regime, which has led to reduction in Capex by the operators. With continuing poor orders and the sustained low oil price environment, Douglas-Westwood’s forecast for FPS Capex 2015-2019 was earlier revised down to reflect current market conditions, from $81 billion to $68 billion.

Lead author, Ben Wilby, who wondered whether 2015 could be the worst year for more than a decade commented that “2015 has been a weak year for FPS orders, with only four vessels awarded so far this year.”

“As a result, the projected 2015 order Capex is just $4.5 billion, a staggering 72 per cent decline from 2014 and the worst since 2003,” Wilby added.

“In the near-term, we expect improvement. Operators have worked hard through the downturn to redevelop projects to make them more cost effective and their efforts should see final investment decisions made on a number of projects. In addition to these redesigns, we are also seeing lower prices for equipment and services in the downturn which further improves project viability. FPSOs will represent by far the largest segment of the

Floater market both in terms of numbers (67 installations) and forecast Capex (79 per cent) during 2015-2019. FPSSs will account for the second largest segment of Capex (9.3 per cent) with TLPs third (9.2 per cent),” said Douglas Westwood.

The report however stated that it is not all doom and gloom for the FPS industry, adding that 2016 should see a recovery in activity as a number of Final Investment Decisions (FIDs) that were due in 2015.

According to the report, re-engineering (including down-sizing) and industry price deflation are key drivers for renewed activity.

Despite operators focusing on cutting cost overruns and delays, Douglas-Westwood further stated that they have continued to plague the industry this year.