Deepwater drivers

Thom Payne

October 18, 2013

A high level of investment creates an opportunity for new entrants into the pipelay vessel market, says Douglas Westwood’s Singapore-based analyst Thom Payne.

Newbuild - the Sapura Diamante, being built by IHC Merwede, for delivery 2014 to TL Offshore, a subsidiary of SapuraCrest, for the installation of flexible pipelines offshore Brazil. It is one of two identical 550-ton pipelaying vessels being built by IHC at the Krimpen aan den IJssel yard, Netherlands.About 32,000km of offshore pipelines are expected to be installed over the next five years, representing a 22% increase over the past five-year period.

Not only is the offshore construction industry faced with the challenge of installing unprecedented volumes of pipe, it is also handling increasing water depths, high pressure, high temperature, and corrosive environments. New flow assurance technologies have also been designed to optimize productivity of subsea developments and keep installation engineers on their toes.

With about 66% of forecast kilometers to be installed in water depths beyond 500m, deepwater is fast becoming the norm for the offshore pipeline industry. The limits of the industry’s technical capabilities are continually being tested, with all eyes now on Technip’s reel-layer, the Deep Blue. The vessel was recently contracted by Shell to lay the world’s deepest pipeline, in 2,900m water, to support the development of the Stones field in the Gulf of Mexico.

Including this record-breaking project, North America will account for 16% of deepwater pipelines—the third-highest of all major regions, behind Latin America with 26%, and Europe with 18%. Deepwater is generally defined as greater than 200m.

Global offshore pipelines subsea vessel operations expenditure 2008-15. Source: Douglas-Westwood’s world subsea vessel operations market forecast.Brazil in particular drives demand for deepwater activity, with the country accounting for 60% of global ultra-deep pipelines in depths greater than 1,700m. Brazil will also account for 58% of the world’s flexible flowline demand over the next five years, with more than 3,300km of anticipated pipe to support the development of Petrobras’ pre-salt fields in the Santos basin.

However, while the deepwater sector grabs industry headlines, conventional pipelines in less than 200m of water will remain a significant market with over 12,500km of anticipated projects to be laid over the 2013-2017 period.

Some 73% of the shallow water pipeline segment will be accounted for by the Middle East and Asia’s support of fixed-platform infrastructure projects such as ADMA-OPCO’s long-awaited Um Lulu development. Comprising of 215km of infield and export pipelines, the contract was awarded to the National Petroleum Construction Company (NPCC) earlier this year. The proposed Trans-ASEAN gas pipeline (TAGP) project could add up to 4,500km of mostly shallow water pipelines to the global network. However, such ambitious construction plans are subject to supply chain capacity. The offshore sector faces a major challenge in ensuring such adequate capacity is available to prevent the rampant price inflation which caused severe slowdowns, delays and even cancellations during the 2006- 2008 period.

With pipelayer demand, vessel days are expected to jump from 15,500 days in 2013 to 22,700 days by 2017, an increase of 46%. Currently, there are approximately 28,680 potential vessel days available to work in the global market; however, only around 35% of that capacity is suited to the rigors of deepwater operations. The scale of the task becomes especially clear when combined with the anticipated global deepwater demand growth of 114% over the next five years.

Subsea 7 has already taken significant steps to close this gap, investing just under US$1 billion on three stateof- the-art, 550MT top-tension capacity flexlayers in July 2013. Subsea 7 began a joint venture between Technip and DOF Subsea, spending US$1.1 billion on four similar vessels. As it stands, the current order book will provide an additional 3,000 vessel days, but despite this multi-billion dollar investment, DW Energy Group predicts that up to 13 additional high-end pipelayers of various types will be required to satisfy global exploration and production plans over the next five-to-seven years.

With such unprecedented levels of demand expected, and the established contractors already at capacity and investing at record levels, it seems there is ample opportunity for new players to gain a share in the offshore pipe and subsea umbilicals, risers and flowlines (SURF) sectors.

We have already seen significant strides made by relative newcomers such as EMAS and SapuraKencana in the technically-challenging North Sea and Brazilian markets. The wider industry eagerly awaits to see how the rest of the supply chain will react. OE

Thom PayneThom Payne joined Douglas Westwood as an analyst in 2006. He is involved in research, market modelling, and analysis for a range of sectors throughout the upstream oil and gas supply chain. He holds a law degree from the University of Kent and an MA in political sociology.

Image: The Sapura Diamante, being built by IHC Merwede.