Quest: Increased Deepwater Activity Boosts Global Offshore Fabrication
Over the next five years, Quest expects an 88% growth in floating production system (FPS) award levels illustrating a strong resurgence of investment in high-capital, major deep water developments.
This growth coupled with current high levels of offshore rig construction will buoy oil & gas related utilization of major offshore fabrication shipyards to record levels. While demand within China and Brasil yards continues to grow, leadership from Korean yards will be the status quo; as drillships destined for the golden triangle, mega FPSOs, floating LNG, and platform topsides will continue to dominate demand.
Offshore oil & gas construction demand reached record levels in 2012 with an estimated three million tonnes of steel awarded to shipyards. This significant demand is driven mainly by; 17 FPS, 14 drill-semis, 34 drillships, 24 jack-ups, and 20+ major fixed platform awards. This momentum continues the most recent cyclical build out of deepwater drilling vessel in 2009 and will begin to flow into an increased demand of FPS systems in the next five years.
Rig Building Buoys Fabrication Yard Tonnage
Drillships and drill semis have seen an average annual delivery count of 20 new builds over the last five years, following a trend of unprecedented demand within deepwater drilling. Utilization of floating rigs continues to remain high at ~90%, though Quest has noticed a decline within the older, mid-water rigs due to the influx of higher-spec units. Future deliveries within the market remains elevated, as the average number of rigs expected to come online within the next five years will once again eclipse an average of 20 deliveries a year.
The effect of floating rig fabrication has presented a noticeable shift within major shipyard utilization, away from commercial vessels and further into oil & gas focused work, where higher margins are commanded. With 51 floating drilling units contracted to Korean Yards, capacity of this group for drillships has become limited with first availability for new orders stretching into the second half of 2015. Given these deliveries and the one time call-off for 28 of Sete’s Petrobras Brasil rigs, Quest expects demand for new orders to be reigned in while the market digests 40 new builds that remain un-contracted alongside increased requirements of labor and associated equipment.
Global FPS Demand to Remain Strong – Increased Investment
With drillship tonnage throughput for Korean Yards expected to peak in the middle of 2013, FPS awards are expected to fill demand, beginning in 2012 with 17 FPS awards representing ~US$14.7 billion – the most buoyant year for the market since 2007. Total hull orders for 2013 are projected at 23-28 units led by FPSO’s, and demand is expected to stay strong through the forecast period. Quest’s mean case forecast for 2013-2017 anticipates 126 units, building upon the 67 FPS orders from 2008-2012, and represents a 13% compound annual growth rate. Spending will increase in accordance, as Quest estimates ~US$14 billion was spent on FPS awards in 2012 and is expected to increase to ~ US $26 billion by 2017 for a total FPS award investment of ~US$113 billion over the time period.
With a mean case of 25 FPS orders per year over the next five years, the movement in spending between years will be driven by project mix. Near-term demand within converted units is likely to be a major theme, leading to steady demand within Singapore and select Chinese shipyards – we have already seen two FPSO conversions from Petrobras in 2013 to replace delays out of Brasil. Towards the end of the forecast period, Floating LNG units for Asia and Australia will increase, as questions remain over the appetite for Australian onshore LNG development costs. Overall, increasing size and complexity of units, led by more demanding development and project drivers, will be a key influence on an expansion in per unit spending in the future.
As global offshore oil & gas continues to grow and require enhanced recovery capabilities, Quest expects mirrored growth within the offshore fabrication space as a record number of drilling vessels drive global E&P activity that translates into major FPS award opportunities. This increase in oil & gas activity is a welcome relief for major fabrication shipyards as the coupling of the offshore industry with a recovery in commercial shipping will drive strong shipyard utilization.