Ship shape

FPSOs are ship-shaped vessels which are deployed to produce hydrocarbons from wells located on the seabed (subsea wells) or from wells located on offshore platforms. Their main distinguishing factor, relative to other forms of FPS, is their ability to store produced fluids which are then offloaded into shuttle tankers. Many FPSOs are converted oil tankers, although increasingly newbuild purpose built vessels are being deployed.

The key components of an FPSO are:
 

• The vessel itself, which may be a newbuild or, more usually, a tanker conversion;
• The mooring system, which on many modern FPSOs is built upon a geostationary ‘turret’ mounted inside the hull and which leaves the vessel free to rotate to head into the prevailing weather. Such mooring systems are based on patented technologies and comprise a promising niche market;
• The process plant, the configuration of, depends largely on reservoir characteristics and environmental factors; water and/or gas injection and gas-lift facilities are commonly included.

The world’s first FPSO was introduced in 1977, on Shell’s Castellon field in WD 117m in the Spanish Mediterranean. The Brazilian operator Petrobras followed this lead by converting the Presidente Prudente de Moraes tanker and deploying it on the Garoupa field in 1978.

Recent years have seen a rapid expansion of the world’s FPSO fleet, prompted in part by an increased demand for drilling units which has reduced the number of semi-submersible rigs available for conversion to production platforms.

International legislation (introduced largely in response to the Exxon Valdez disaster) which phases in requirements that tankers be fitted with double hulls provides further stimulus, since conversion of otherwise obsolete single-hull tankers into FPSOs enables the profitable re-utilization of depreciated assets.

FPSOs dominate the global floating production scene. As of year-end 2007, there have been nearly 190 FPSO deployments worldwide – 63% of all floating production systems (when combined with FPSSs, TLPs and spars).
 

The reasons for the popularity of FPSOs as host facilities are not difficult to work out.

They contain large deck areas for processing facilities and plenty of vertical load-bearing capability (to resist mooring and riser loads), all at economical cost and with relatively short lead times, since tankers are produced in large numbers from shipyards worldwide.

FPSOs also have the advantages of allowing more flexible oil distribution and providing storage capacity for produced oil which can eliminate the need to install pipeline export networks.

This factor is relevant off West Africa, for example, where offshore pipeline infrastructure is very limited and restricted to shallow waters.

Off Brazil, the existing offshore infrastructure is working close to capacity and the extreme water depths of new fields mean that costs of shuttle tanker offtake from FPSOs compare very favourably with the costs of installing additional export pipelines.

Turning to the prospects for individual regions, the data indicate that significant growth is in store for the majority of the regional FPS fleets. Western Europe and Latin America have seen the most FPS deployments to date.

Western Europe is set for a period of resurgence 2008-2012, with 18 deployments in prospect, compared to three during the 2003-2007.

Although many of its producing areas are now considered mature and significant new finds are becoming less frequent, the sustained high oil price has given significant boost the region. Africa accounts for nearly a quarter of deployments and, totalling 30.

The identified prospects for North America indicate potential for a slight decrease in installations, with 16 compared to 18 completed during the 2003-2007 period.

However, many projects in the US GoM have relatively short lead times and levels of activity could well exceed the prospects identified here. Asia is also set for strong growth, from 16 units 2003-2007, to 26 during 2008-2012.

The regional share of the 127 identified FPS prospects planned and possible for the 2008-2012 period.
 

Combined, Africa and Asia account for almost 45% of these prospective installations, with North America and Latin America together accounting for another 31%.

Capex forecast

It is important to note that in presenting our market forecasts, we have followed the convention whereby the date associated with each floater project relates to the platform’s year of installation.

In practice, of course, the contractual payments relating to the FPS units identified will often be made in instalments, and will in most cases be spread over a number of years.

For the sake of clarity and transparency, our forecasts do not attempt to reflect this situation; instead they focus on indicating the value of the FPS installations that have occurred or will occur in any particular year.

FPSOs represent by far the largest segment of the market, accounting for 79% of the forecast Capex. FPSSs account for a further 10%, whilst the remaining 11% of expenditure is attributed to TLPs and spars giving a total FPS Capex forecast for the period of over $43 billion.

In terms of order value, we are currently seeing a high level of FPS orders, and this is expected to continue as a series of major developments require high-specification units for delivery during the forecast period.

Within the FPSO segment, the exact mix of newbuilds, conversions and upgrades/redeployments that will be required to meet demand is impossible to determine precisely, though this will obviously have a strong effect on the Capex levels within the segment.

Of the prospective units, just over half are expected to be conversions, and another third newbuilds, with the remaining units likely to be redeployments or without a defined development type as yet.

Analysis

In our analysis we have identified four main drivers behind the continued demand growth within the FPS sector:

On the supply side, the influence of globalisation is already apparent but is likely to be somewhat offset by national insistence on local content in the delivery of floating production systems and other components of offshore developments generally.

An active leasing market has emerged in the FPSO segment in particular – around 60% of the world’s FPSO fleet, and over half of the North Sea fleet, is owned by leasing contractors.
 

In recent years, contractors have picked up a number of significant project awards based on the deployment of converted vessels – predominantly tankers and semi-submersible drilling rigs.

The redeployment of modified/upgraded vessels, especially in the leased FPSO segment, is set to remain important in meeting the growth in market demand.

There has been a recent trend to speculatively construct generically designed FPSOs, especially by the newer floating production leasing companies such as FPSOcean, Nexus Floating Production, Nortechs FPSO, Rubicon, Sea Production and Sevan Marine; who all have vessels which are either under construction, or ready for conversion, with no firm contractual agreements from interested parties.

This type of construction could be interpreted as necessary for the less established floating production companies, who need to have vessels ready to lease rather than securing contracts beforehand, and as a result of the market trying to meet what it sees as a shortfall in the projected demand for FPSO vessels over the coming years.

Alternatively, the newbuild option gives vessel designers a ‘blank canvas’ (in contrast to tanker conversions) and new innovations in vessel design are emerging, such as Sevan Marine’s SSP300 design based on a cylindrical hull, with the design being used on three fields so far.

The growth in interest in LNG liquefaction and transportation has recently spawned some innovative floating production concepts.

Norwegian owned company FLEX LNG is a newcomer to the FPS marketplace but has already raised interest in its M-FLEX concept, which allows a purpose built LNG tanker to liquefy natural gas using deck mounted nitrogen expander liquefaction cycle trains.

Currently FLEX LNG has three vessels on order with Samsung Heavy Industries and has been in discussions with Nigeria’s Peak Petroleum Industries who are considering the concept for its Bilabri and Orobiri fields. FLEX LNG expects the vessels to be producing LNG onsite by 2011.

Regional markets

Africa and Asia account for nearly half of the 123 vessels forecast over the 2008-2012 period (53). Latin America is the next most important region with 21 forecast installations, followed by North America (19), Western Europe (17), Australasia (12) and the Middle East (1).

In terms of market value – Africa, Asia and Latin America – account for 66% of forecast global Capex.
 

The relatively benign environments and shallow waters in which most of the FPS prospects in Asia are located enable relatively cheaper FPS solutions to be adopted.

Thus, although the region has 26 FPS units forecast for the period, its Capex ($7.3 billion) is much lower than that forecast for Africa which has 27 installations planned and a Capex of $11.6 billion – where newbuild solutions and/or higher specification vessels tend to be required.

We believe that our market forecasts are conservative and that activity within the FPS sector over the period to 2012 could well exceed the levels presented here. There are two main reasons for this.

The first of these relates to the potential for new floater projects to emerge as a result of ongoing exploration activities, and the second to the lack of a defined development strategy for some known prospects.

Further information is available at www.dw-1.com. The authors can be contacted via publications@dw-1.com or +44 1227 780999.

The Authors:

Alex Pearce

Alex is lead author of the “World Floating Production Report” and an Analyst for Douglas-Westwood, contributing to the firm’s commissioned research, commercial due diligence and published market studies in the oil and gas and renewable energy sectors.

Alex is a graduate who has previously worked in the oil & gas, petrochemical and power generation industries in the engineering sector, with clients ranging from Saudi Aramco to Bechtel.

Steve Robertson

Heading DWL’s oil & gas research, Steve is a graduate in Economics and Computing and editor of DWL’s current range of ‘The World’ series of market reports including ‘The World Deepwater Market Forecast’, The World LNG & GTL Report’ and ‘The World Floating Production Report’.

His market modelling activities include work on all facets of field development, the subsea production sector, floating production, LNG & GTL, etc. Steve has recently managed numerous market due-diligence studies for major investment banks, both in the UK and abroad.

Robertson is a member of the Institute of Petroleum and the Society for Underwater Technology.