Global FPS Market – Will 2015 be the worst year for more than a decade?
With continuing poor orders and the sustained low oil price environment, Douglas-Westwood’s forecast for FPS Capex 2015-2019 has been revised down to reflect current market conditions, from $81bn to $68bn. Lead author Ben Wilby commented: “2015 has been a weak year for FPS orders, with only four vessels awarded so far this year: an FPSS for the Appomattox field, a large FPSO for ENI’s Sankofa development in Ghana and one small FPSO unit each for the South Pars field and the Brotojoyo field redevelopment. As a result, the projected 2015 order Capex is just $4.5bn, a staggering 72% decline from 2014 and the worst since 2003.”
It is not all doom and gloom for the FPS industry however, and 2016 should see a recovery in activity as a number of project FIDs that were due in 2015, such as the Vette FPSO, are reached. Re-engineering (including down-sizing) and industry price deflation are key drivers for renewed activity.
Despite operators focusing on cutting cost overruns and delays, they have continued to plague the industry this year. One major project that has suffered is the Australian Ichthys project. This field will utilise both an FPSO and FPSS unit, costing a combined $4.7 billion. The project was originally due onstream in 2016 but has been delayed until 2017, while overall development costs for the field are also up 10%. This is only one of the many examples this year and cost overruns and delays remain key problems that operators need to resolve.
Regionally, it is high Capex, deepwater regions that are suffering. Operators are deferring high cost units in places such as East Africa in favour of more established areas, where units can be brought onstream quicker and at a much lower cost. Despite predictions that the market in North America would suffer as a result of the shale industry and the collapsed oil price, interest has blossomed. The Appomattox FPSS was the highest profile order this year and a high number of other projects are expected to be follow next year.
Alongside the revision of the FPS forecast, Douglas-Westwood have launched a new quarterly update service. Research Director Steve Robertson announced: “The state of the industry continues to evolve and in order to provide the most up-to-date insight to our clients we have launched a quarterly update subscription service for our FPS sector forecasts. This provides a more-frequent update of our market forecasts in addition to project specific updates on recent and up-coming industry orders. With our underlying data being maintained on a daily basis, this was a logical extension to our offering that we anticipate will be well -received by our clients, based on feedback we have received.”