Offshore Projects Surge Threatens Capacity Crunch

(Global) Significant Jump Seen in Service Prices

Offshore contractors are forecast to witness an uptick in demand in 2020 as a surge in new projects threatens a capacity crunch, according to the latest analysis by research consultancy Rystad Energy.

The firm predicts that the number of new oil and gas projects given the go-ahead in 2020 will grow to 250, a sizeable increase compared with 160 at the start of the forecast period in 2016. Nonetheless a lack of capacity is set to hamper investment.

“A dark cloud of capacity constraints is casting a shadow over the oilfield service industry heading into 2020, mirroring the sharp growth in the number of new projects being brought forward by oil and gas operators,” Rystad notes in a statement.

Schedule Slippage

The research suggests that floating production contractors, subsea installation players and fabricators of liquefied natural gas facilities are all expected to struggle to keep up with the surge in demand for their services, likely resulting in projects schedule slippage.

The firm states that contractors have secured 13 new orders for floating production, storage and offloading vessels (FPSOs) in 2019, with the total units under construction or on order rising to 28 this year.

“This means FPSO players will not be able to handle all 12 of the additional units that operators aim to move forward with in 2020. Likewise, in the installation market for subsea umbilicals, risers and flowlines (SURF), orderbooks are swelling and players are racing to keep pace given the vast number of Christmas trees – nearly 600 in all – that were ordered in 2018 and 2019,” a Rystad analyst commented.

The firm also expects difficulties due to installation of  an estimated 4,000 kilometers of subsea oil and gas flowlines and umbilicals in 2020.

Deepwater Challenges

The outlook for deepwater activities is also set to be challenging, complicated by the fact that offshore energy companies are rapidly progressing offshore wind projects, creating potential bottlenecks.

“Deepwater projects are now in a challenging situation as they are heavily dependent on SURF and FPSO contractors. Deepwater fields have been among the most sought after supply sources in recent years, next to the shale bonanza, and the increase in massive contract awards to players in the deepwater industry now could put constraints on further field sanctioning activity,” said Audun Martinsen, Head of Oilfield Services at Rystad Energy.

Rystad highlights that major SURF players like Subsea7 and Saipem are now “in a great position” to capitalize on offshore wind, having managed already to diversify and become substantial drivers within the energy transition, but notes that this segment “will increasingly occupy vessel capacity from the installation fleet, likely causing a significant jump in service prices and exacerbating the contractual challenges faced by operators.”