FPSOs shine bright in down market

Audrey Leon

September 1, 2015

In advance of OE’s 2015 Global FPSO Forum, in Galveston, Texas, Audrey Leon speaks with the event’s co-chairs – SBM Offshore’s Jim Wodehouse and Endeavor Management’s Bruce Crager – to discuss topics affecting the FPSO sector.

Shell and partner Esso Exploration agreed to sell their 50-50 stakes in the Anasuria Cluster, including the Anasuria FPSO, in the UK Central North Sea, to a Malaysian joint venture consisting Ping Petroleum and Hibiscus Petroleum in August. Photo from Shell. 

While most news these days concerning the oil and gas industry is gloomy, one sector looking past the clouds is the FPSO market.

In June, Consultancy Visiongain reported it expected global capital spending on newbuild and converted FPSO vessels to reach US$8.65 billion this year, with the largest spend focused on South America and West Africa. Even Brazil – despite much uncertainty due to recent scandals – continues to be one of the hottest players in the market.

At the end of July, production began at the FPSO Cidade de Itaguaí on Petrobras’ Iracema Norte development. Investment firm Simmons & Co. said in a report early August that the Iracema Norte project was originally expected to be completed in 4Q 2015, but was completed ahead of schedule. Additionally, Simmons reports there are three additional FPSOs that are in the integration process and expect to see first oil in 2016. The firm puts the Lula Alto development (Petrobras 65%, BG 25%) at a 1Q 2016 start, followed by Lula Central in 2Q, and Lapa in 4Q 2016.

Cidade de Itaguaí, converted by MODEC in consortium with Schahin, is 332m-long, 31m-high, and 58m-wide, and weighs 82,000-tonne. The FPSO is capable of processing 150,000 bo/d, 280 MMscf/d of gas. It is able to store 1.6 MMbbl of fluids, and inject 264,000 b/d of water.

The Cidade de Itaguaí  FPSO is the latest vessel to come onstream at Petrobras and BG Group’s Iracema Norte development. Anchored 240km off the coast of Rio de Janeiro, in about 2240m water depth, the FPSO is connected to eight production wells and nine injection wells.
Photo from BG Group.

Also in June, research analysts Douglas-Westwood said they still expect FPSOs with a total value of $60 billion to be installed from 2015-2019. However, the firm noted the effect of the downturn on the FPSO market in 2015, citing at the time that only three contracts have been awarded. However, those three contracts accounted for some $1.5 billion in spending. Douglas-Westwood forecasts that four more awards are likely this year while a further five could potentially be awarded if there is an improvement in the oil price.

OE: Despite the downturn in oil prices, many reports suggest a promising future for the FPSO market. What is your take on the current market?

Jim Wodehouse, strategy development manager, SBM Offshore:

The fundamental benefits of the FPSO, such as; deepwater and ultra-deepwater mooring capability, large riser capacity for complex subsea configurations and subsea tiebacks, suitable hull size for large topsides to accommodate complex processing requirements, and large oil storage capacity for remote regions, are all features which will ensure a promising future for the FPSO. Of course, the near-term demand for new FPSOs is depressed due to the low oil price, but I am confident that the inherent flexibility of the FPSO concept will enable the industry to adapt to the new market conditions.

Bruce Crager, executive vice president, Endeavor Management:

Although the current supply and demand for oil and gas is out of balance, the world will continue to need fossil fuels for many years to come. Everyone in the world who has cars, electricity, and other basic services want to keep them. Therefore, growth in the world’s population ensures increased energy needs in the future. FPSOs are a very practical way to meet the long term need for energy. I believe the FPSO market will grow independent of oil price, although some projects may be delayed in the near-term. FPSOs can be used anywhere in the world and in any water depth beyond 50ft. They are used in marginal fields as well as large fields producing over 200,000 b/d. In addition, they are more easily relocated and reused than other types of offshore facilities. Therefore, the longer term future for FPSOs is very positive.

Wodehouse.

OE: Are there any new innovations that the market can expect to see over the next few years?

Wodehouse: In order to adapt the FPSO concept to the new market conditions, there will need to be changes to the contracting and business models, as well as new technology innovations. Strategic frame agreements, standardization of technical requirements, and consistent contractual terms, between the oil companies and the main FPSO contractors, and between the main FPSO contractors and their main suppliers, will be key to reducing costs, schedule and risks in future projects. New technology innovations will include greater use of steel risers to meet the challenges of the HPHT wells, application of enhanced oil recovery (EOR) technology to increase oil recovery from the reservoir, and increased use of onshore gas processing technology “marinized” for gas FPSOs, LNG FPSOs and challenging gas compositions on large oil FPSOs.

Crager: Technology related to FPSOs continues to be developed in several areas. These include a) mooring and turret improvements, such as higher pressures, deeper water moorings, and improved disconnectable designs for difficult areas, such as those with hurricanes and ice; b) improved process systems for heavy oil and crudes with H2S and CO2; and c) improved methods to evaluate the condition of FPSOs and extend their life in the field. “Stranded gas” is still an issue in many fields and improvement in FLNG and more reasonably priced gas to liquids technology should help solve this problem

OE: What’s the greatest challenge facing FPSOs?

Wodehouse: Ensuring that, even with the pressure to reduce costs, the increasingly complex FPSOs of the future are delivered on time and on budge, and are capable of being operated in a safe, reliable manner.

Crager.

Crager: Cost overruns and delayed delivery are clearly issues in the industry and many FPSO projects have suffered from these type of problems. Operators and FPSO leasing companies have tried various commercial and delivery models to overcome these issues. Unfortunately, there have been a number of companies who have converted FPSOs but had no prior experience so they are more likely to have problems than the more experienced contractors.

The basic practices of large projects still apply to FPSO projects and when followed, will help avoid cost and delivery problems. These basic principles include rigorous engineering before starting construction, 3D modeling, minimizing changes, ordering long lead items as soon as possible, and working with experienced contractors. Functional vs. company-generated specifications can also help minimize cost and delivery problems. Standardization is being promoted, but the industry, particularly the larger operators, often stay with their own specifications and practices as opposed to more standardized industry guidelines/requirements.

OE: With the opening of Mexico’s energy market, what is the outlook for FPSOs in this sector? At last year’s Global FPSO forum, Crager said with regards to deepwater development that there is a need for this technology. What’s your take now? Will Mexico be the next big area for FPSOs?

Wodehouse: The opportunity for the use of FPSOs in the deepwater offshore Mexico is tremendous, and although that market has been slower to develop than we all hoped for, the resource appears to be there and the FPSO industry has the capability to meet the challenges, so it will happen, the question is how soon.

Crager: I presented an overview of FPSOs in Mexico at last year’s Global FPSO Forum based on the current and planned FPSO activities at that time. Little has changed. There are still several FPSO projects under consideration by Pemex, such as the large FPSO and the extended well test FPSO for the Ayatsil Tekel field. In addition, the deepwater lease areas that are expected to be offered later this year should be logical locations for FPSOs if they are found to be of commercial interest.

The technology issues I mentioned above will be important to FPSO development in Mexico, including heavy oil processing, dealing with H2S and CO2, and disconnectable moorings due to hurricanes. Mexico could be a major area for FPSOs, but having other operators come into Mexico under the new leasing program will be an important step. These new operators will bring funding, active exploration programs, and are likely to have experience with FPSOs from other parts of the world.