Why FPSO is becoming so important for oil and gas companies

The recent increase in international Brent crude is not only good news for oil producing countries or oil  refinery companies in form of higher revenue but it’s also the beginning of  new explorations with numerous economical and efficiency benefits of Floating, Production, Storage and Offloading (FPSO) vessels which are proving more important to operators in the oil and gas sector.

Three years ago it seemed FPSO market was dead in the waters thanks to  downturn in oil projects from 2014 as the need for new FPSO vessels stalled and there were no new orders made for two years.

Fast forward to 2019, a report from Norwegian oil and gas intelligence firm Rystad Energy expects 33 FPSO vessels to be sanctioned from 2019 to 2021 as oil and gas activity picks up in the offshore sector which represents a significant increase for the global market.

Rystad Energy expects the high capacity demand to come mainly from the developments in Guyana and Brazil where operators such as ExxonMobil, Equinor, and Petrobras are stepping up their deepwater production.

Rystad Energy credits the growth to “higher oil prices, technological advancements and lower costs.”

“The cost-cutting efforts implemented during the downturn are a major contributor to the favorable economics of most of these projects…The pipeline of projects indicates that FPSO awards are set for a strong comeback, driven in particular by South America,” Rystad Energy said.

Rystad Energy is not alone in their belief of the ongoing growth of the FPSO market. A separate report conducted by Wood and Offshore magazine also highlighted various reasons for the turnaround such as increased oil prices, new design concepts, fabrication and integration innovations at global shipyards, creative financing options, and industry partnerships are all factors that are contributing to this projected upswing in activity.

“The momentum has already begun, with newly sanctioned projects on the rise. Cyclical and structural market changes are finally coming together to move major projects forward,” said Wood and Offshore magazine.

Another study by Market Research and strategy consulting firm Global Market Insights predicted that the FPSO market will surpass $30 billion by 2025 as global market is set to witness vigorous growth on account of shifting trends toward offshore exploration & production driven by depleting onshore oil & gas reserves.

“Development challenges including excessive costs, material transportation, environmental conditions and decommissioning associated with fixed infrastructures will further shift the industry focus toward the utilization of these vessels as an alternative,” study by Global Market Insights published in January 2019 said.

“Furthermore, advancement in subsea technologies along with growing focus toward fast-track floating solutions will continue to stimulate the industry growth.”

Sources in the global oil and gas sector believes the global search for new sources of oil and gas is spreading to new areas, with operations shifting offshore to deeper waters, smaller fields and more difficult locations a situation which companies will be attempting to maximize their revenue from, as more attention will be turning to the benefits of FPSOs.

For example, ExxonMobil discoveries in a country in South America’s north coast called Guyana are considered good news for suppliers and builders of floating production units, as there is potential for at least five FPSOs to be deployed at the Stabroek Block, expected to produce more than 750,000 barrels of oil per day by 2025 while first production is expected in March 2020.

Furthermore, the U.S. major’s Liza Phase 1 development is expected to begin producing up to 120,000 barrels of oil per day in early 2020, utilizing the Liza Destiny FPSO which is set to begin its journey to Guyana in the summer while Liza Phase 2, expected to start up by mid-2022, will use a second FPSO designed to produce up to 220,000 barrels per day. SBM Offshore is expected to land this FPSO contract.

Also, during 2018 summer, Equinor said Brazil had become a core area for the company with a daily production from the company’s current fields of over 90,000 barrels per day. At that time, Equinor revealed plans to invest more than $15 billion in Brazil until 2030. According to the company, the field has the potential to produce between 300,000 and 500,000 barrels of oil equivalent per day in Brazil depending on phasing of projects and exploration success.

In December 2018, Brazil’s national oil company Petrobras recently showed its intent for further investments in FPSO units as the oil major decided to set aside $84 billion to spend between 2019 and 2023.

Two months ago, world’s largest FPSO supplier SBM Offshore ordered two Fast4Ward FPSO hulls with plans to order a third soon. One is ordered for the Exxon’s Liza 2 project while the order of the other one was based on increased confidence in the market.

SBM Offshore recently said the company was tracking 45 potential FPSO projects in 25 countries, which could materialize in the coming two to three years.