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FUTURE FPSO PROJECTS IN THE DECISION-MAKING PROCESS

FUTURE FPSO PROJECTS IN THE DECISION-MAKING PROCESS. Presentation by Jim McCaul at the Emerging FPSO Forum 25 September 2013. OUTLINE OF PRESENTATION. The Pros and Cons of FPSOs Profile of FPSO use worldwide FPSO Projects in the Planning Stage Our Forecast of FPSO Orders

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FUTURE FPSO PROJECTS IN THE DECISION-MAKING PROCESS

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  1. FUTURE FPSO PROJECTS IN THE DECISION-MAKING PROCESS Presentation by Jim McCaul at the Emerging FPSO Forum 25 September 2013

  2. OUTLINE OF PRESENTATION • The Pros and Cons of FPSOs • Profile of FPSO use worldwide • FPSO Projects in the Planning Stage • Our Forecast of FPSO Orders • Issues Impacting Outlook

  3. FPSO PROS AND CONS PRO • Has field storage and can be used in remote locations – self contained • Can operate on shallow or ultra-deepwater fields • Less weight sensitive than other types of FPSs • Leasing transfers some risk from field operator to contractor • Assumed residual value used as a competitive tool in leasing bids • Deck area allows flexibility in process plant layout • Surplus/aging tankers can be used for conversion • Can be modified/redeployed following field depletion • Quick disconnect turrets enable emergency relocation CON • Subsea tiebacks create higher well maintenance costs • Turret/swivel machinery complex and failure a major problem • Cost and delay surprises when converting tankers to FPSOs • Redeploying an FPSO not as easy as it may appear Source: BWO

  4. 204 FPSOs ARE IN SERVICE, AVAILABLE OR ON ORDER(number of units as of September 2013) • 27% of FPSOs are offshore Brazil • 21% are located offshore Africa • 14% are off Northern Europe • 12% are in Southeast Asia • 7% are off China • 7% are off Australia/NZ • 5% are in other locations • 7% are without field assignment * * * * • 13 FPSOs are currently off field and looking for work • 1 FPSO being built has no field assignment Note: Data exclude 4 small FPSOs used for well test in the GOM and 2 FPSOs built for emergency spill recovery On Order Existing

  5. 84% MORE FPSOs IN SERVICE THAN 10 YEARS AGO – WITH 123% MORE OIL PROCESSING CAPACITY

  6. 44% OF FPSOs IN SERVICE OR ON ORDER ARE LEASED

  7. MORE THAN 120 FPSO PROJECTS ARE IN THE VISIBLE PLANNING STAGE • These are announced discoveries where an FPSO is either planned or logical production solution given the location and field characteristics ~25% are in the bidding or final design stage ~75% are in the planning and study phase • Taking into account projects requiring multiple production units, development of the discoveries could require 135 to 140 FPSOs • Another 20+ discoveries could require an FPSO, BARGE, MOPU/FSO, SUBSEA or other system

  8. WHERE FPSO PROJECTS ARE BEING PLANNED • Brazil is clearly the major location for future FPSO projects – 51 projects in planning stage • Africa is next in line – with 13 projects in Angola, 11 Nigeria and 9 elsewhere • SE Asia is in 3rd place with 11 projects • No. Europe is in 4th place with 8 projects • In 5th place is the GOM – 6 projects, all on the Mexican side

  9. EXAMPLES OF FPSO PROJECTS IN THE PLANNING STAGE

  10. LOCATION AND TIMING OF VISIBLE FPSO PROJECTS

  11. PROCESSING PLANT CAPACITY IN VISIBLE FUTURE FPSO PROJECTS(b/d in 000’s) • 58% require topside plants with 100,000 to 200,000 b/d oil processing capability • 21% require topside plants with 50,000 to 100,000 b/d capacity • 10% involve small FPSOs with less than 50,000 b/d plants • 3% are mega- FPSOs with more than 200,000 b/d processing capacity • 7% are primarily gas FPSOs

  12. BREAKDOWN OF PROCESSING CAPACITY REQUIRED FOR VISIBLE FUTURE FPSO PROJECTS (b/d in 000’s)

  13. WHAT WILL DRIVE THE PACE OF FUTURE FPSO ORDERS? • Underlying market conditions • Smaller FPSOs for marginal fields are influenced by near term oil price expectations and availability of financing • Large FPSOs intended for major developments tend to be less sensitive to oil price and financing • Passing the FID hurdle • But even the biggest oil company has to make choices -- there are budget constraints and limits on available personnel to manage project implementation • Whether an FPSO project gets into the CAPEX plan depends on its ranking in terms of expected return on investment • This will be determined by the project economics – and the economics of other investment possibilities

  14. MARCH 2013 FORECAST OF FPSO ORDERS OVER THE NEXT 5 YEARS Most Likely Forecast Assumptions • Global economic growth averages 3 to 4 percent annually over next few years • Oil demand growth remains around 1 percent per year • Mideast tensions continue, but no major oil supply interruption • Oil price expectations hover in $90 to $110 range • Some cost growth and delivery bottlenecks in the FPSO supply base, but not enough to slow major project starts or erode contractor profits • No major environmental incident involving an FPSO • No major impact from shale oil on deepwater investment

  15. ASSUMPTIONS UNDERLYING THE HIGH AND LOW FORECASTS High Forecast Assumptions Global economic rebound accelerates quickly from 2013 onward, rises to 4 %+ per year Oil demand growth tracks upward with economic growth Mideast tensions grow, oil supply interrupted Shale oil and/or tight oil projects meet worldwide opposition, delaying project starts Many unconventional onshore fuel projects encounter continuing logistics constraints Oil prices spike to $150+ and expectations remain above $120, making most visible marginal floating production projects commercially viable Little cost growth, few delivery constraints in the floater supply chain Low Forecast Assumptions • China and/or India economies falter, Europe/U.S. economies continue to stagnate over next few years • World GDP growth turns downward • Global oil demand growth falls as economic activity and world output slows • Tight oil, shale oil finds grow internationally, technology advances lower cost • Oil price expectations fall to $70 to $90 range, negating commercial viability of many visible marginal floating production projects • Contractors experience supply constraints, raising costs, creating delivery delays

  16. THE LOW END OF THE MARCH FORECAST IS NOW LOOKING MORE LIKELY • Portfolio of potential FPSO projects has been growing • But new project starts have slowed – 9 FPSOs have been ordered thus far in 2013, an average of 1 order/month • Cost growth, access to financing, market barriers, other issues seem to be creating barriers • We now see the low end of the forecast range – i.e., ~90 FPSOs – as the most likely forecast of FPSO orders

  17. ISSUES • Local content requirements are • Creating market entry barriers and limiting competition • Raising costs – e.g., Egina FPSO $3.1 billion! • Clogging the supply chain • Shale oil/tight oil growth is a threat to deepwater • Added supply could result in lower oil prices • Shale oil projects could draw investment resources from deepwater • Deepwater costs are increasing – shale oil/tight oil cost are falling

  18. Thank You If you would like to discuss any aspect of this presentation or get further details on the FPSO market, please contact Jim McCaul imaassoc@msn.com or 1 202 333 8501 Our website has further information that you may find useful. Please give us a visit. www.imastudies.com

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