Subsea infrastructure - growing and moving deeper

Matt Loffman

January 1, 2015

Subsea hardware spending in 2014-18 is forecast to nearly double the size of installed subsea infrastructure, according to Douglas Westwood’s latest estimates. Matt Loffman sets out the detail.

Douglas-Westwood forecasts subsea hardware capex will total US$117 billion between 2014 and 2018, representing growth of more than 80% compared with the preceding five-year period. Subsea production hardware is expected to attract $57 billion of expenditure, as high-value projects come onstream. The subsea umbilical, riser and flowline market approaches $43 billion while pipeline spend is forecast at $17 billion.

This vast expenditure will nearly double the size of the existing infrastructure network, below the water surface. With non-productive time and delays prohibitively costly for operators, the outlook for high quality subsea inspection, repair and maintenance (IRM) is positive.

Growth in subsea infrastructure spend continues trending towards deeper waters. Around 44% of total Capex in the next five years will be targeting projects in >1000m water depth. A large portion of prominent offshore projects and the vast majority of the so-called mega-projects, with greater than $10 billion Capex, are in deepwater areas.

In addition to the established deepwater regions in Brazil, West Africa and the US Gulf of Mexico, the newly discovered offshore gas provinces in East Africa and the Eastern Mediterranean are also in >1000m water depth and are expected to provide additional markets, which will positively impact IRM expenditure in the future.

Global subsea hardware Capex by equipment type.
Source: Douglas-Westwood: World ROV Operations Market Forecast 2013-2017.


Utilization of ROVs and AUVs to trend upwards in IRM

A large proportion of subsea IRM work is executed by remotely operated vehicles (ROVs). IRM support typically entails work-class ROV inspection, replacement tasks, cutting operations, hatch operations on subsea structures and valves, as well as cleaning tasks.

Although IRM is the smallest market for work-class ROVs, its Opex driven nature ensures that it is one of the most secure in terms of vulnerability to oil price volatility. Driven by the ever-increasing volume of installed subsea hardware described above, demand for IRM is forecast to rise from 5180 days in 2013 to 6338 days in 2017, at 5.2% compound annual growth rate. Associated expenditure is forecast to increase from $63 million to $99 million and the number of dedicated work-class ROVs required from 20 to 25.

Another sector where subsea IRM growth shows promise, relates to autonomous underwater vehicle (AUV) operation. Increasingly used for deepwater surveys, at present a range of technological advancements in the space are being developed. AUVs are commercially proven in pipeline inspection markets, while developments in other areas are taking place at present.

Life-of-field inspection work and sealine inspection surveys are similarly in the early stages of commercial development. Tests employing AUVs for sealine inspections have been carried out recently and are continuing to be applied to the units in some regions, while life-of-field inspection activity has generally been delayed until 2015.

With the growing infrastructure and subsea pipeline network, we expect to see AUVs gain market share over the coming five-year period.

Figure 2: Global ROV demand by region.
Source: Douglas-Westwood: World ROV Operations Market Forecast 2013-2017.


Capex cutbacks threaten near-term growth rate of subsea infrastructure

Reductions announced by many of the major international operators in 2014 are expected to threaten projects with higher capital outlay, including those in deepwater and conditions otherwise suitable for subsea field development. Some uncertainty in crude oil prices may also expose projects with higher break-even prices, although this is generally expected to be limited to the short-term.

Reductions are expected to slow growth in upstream Capex in the short-term, extending to 2015. However, subsea IRM retains a positive outlook, servicing an expanding network of subsea infrastructure – albeit expanding at a lower pace in the near-term than would have been the case otherwise.

However, as the present situation in the Middle East proves, there is always potential for oil prices to again rise and further drive the move into deepwaters and with further growth in the associated capital expenditure.

Figure 3: AUV unit demand by commercial function.
Source: Douglas-Westwood: World Subsea Hardware Market Forecast 2014-2018.


Subsea IRM has a positive outlook

Subsea developments will continue to account for an ever increasing share of global offshore activity. The technologies deployed are unlocking reserves that would previously have been difficult or impossible to access and the sector has become a sizable opportunity for the oilfield service and equipment industry. The outlook for the subsea IRM market shows growth potential well beyond a five-year forecast, particularly in the longer-term as Arctic resources are targeted off Canada, Norway and Russia. This is positive news for IRM providers who continue to gain importance in the global industry.

Matt Loffman, 
since joining Douglas- Westwood, has worked on a range of research and advisory projects focusing on international drilling and oilfield service provision and downstream markets. He specializes in analysis of frontier markets and the Middle East. Loffman is a graduate of the London School of Economics and the University of Damascus and lived for a number of years in the Levant.