Floating production systems (FPS) remain in demand despite their comparatively high cost and other risks and challenges, including financing and keeping up with demand.
For remote deepwater regions in particular, they often represent the most favorable production option. And while operators continue to invest more cautiously, especially when it comes to capital-intensive projects, stronger oil prices have made new offshore production more attractive than it was in the second half of the 2010s, bolstering demand for new FPS units.
“Brazil remains the hot spot for FPSOs.” Mark Adeosun, Westwood Global Energy Group.
Expectations FPSO activity will remain comparatively strong in the coming five years or so. Westwood Global Energy Group is tracking 79 units globally that are anticipated to start production between now and 2028. Westwood also counted 34 newbuilds, 23 conversions and 22 upgrades or redeployments.
“Of these, 44 units are already under construction,” Mark Adeosun, a Westwood director, told Hart Energy.
Westwood expects 15 units – comprising three newbuilds, three conversions and nine upgrades or redeployments – to be awarded in 2023. Another consultancy, Wood Mackenzie, has similar expectations.
“In terms of sanctions, we expect awards to remain higher than historical averages through 2023 and 2024, with 14 and 15 FPS awards, respectively, before decreasing towards the end of the decade,” WoodMac analyst Catarina Podevyn told Hart Energy.
However, Rystad Energy reported more modest expectations, estimating that nine FPSOs will be sanctioned this year and 10 in 2024. Nonetheless, a Rystad analyst, Edvard Christoffersen, told Hart Energy that this represented relatively high levels of activity. And while Rystad then expects activity levels to decline in the subsequent years, this forecast will be affected by factors such as oil price trends.
Obstacles and roadblocks
The analysts expressed similar views on potential obstacles that could slow or even derail activity. In the short term, the capacity of yards to meet demand for newbuild FPSOs was flagged as a significant challenge.
“With a high number of awards expected over 2023 [to 2024], bottlenecks at yards is a potential issue,” Podevyn said. “We’re also seeing an increasing utilization of redeployed FPSOs in particular, and the availability of existing facilities to meet this demand could also become a roadblock.”
Podevyn also cited rising costs and environmental and geopolitical factors as potentially posing a threat to FPSO activity levels. On top of this, the events of recent years have left operators acting far more cautiously, even as oil prices and demand have strengthened.
“With the market today and the difficulties in the supply chain — particularly with backlogs increasing, costs increasing and the ability to deliver being more difficult — there’s so much more scrutiny over investment dollars,” Andrew Thorburn, WoodMac’s global head of cost analysis, told Hart Energy.
Decarbonization targets and concerns are also playing into this increased scrutiny of new investments.
“Following the European Investment Bank announcement in 2019 to phase out lending to fossil fuel projects within two years, some banks have also stated that they will stop directly funding new oil and gas projects,” Adeosun said. “Some European banks are also under pressure from investors to significantly reduce their engagement with new oil and gas developments.”
As a result, financing capital-intensive projects such as those that involve building a new FPS is increasingly challenging.
“A trend is that there has been more usage of the public bond market to finance FPSOs,” Christoffersen said. He noted that while FPSOs have relatively low emissions compared with other types of production units, operators are nonetheless under growing pressure to demonstrate environmental credentials to obtain financing.
Over the longer term, there is also the question of how oil demand will evolve, which contributes to caution among operators.
“If you start to construct a new FPSO now with a lifetime of 20 years, then you’re basically gambling that this unit can produce oil for at least 20 years and this oil will be needed in the market, whereas we predict that oil demand will already start to decline within this decade,” Christoffersen said.
FPSO hotspots
A number of operators are willing to make that gamble on long-term oil demand, however, judging by the current amount of activity.
The analysts pointed to a number of hotspots globally for FPS activity, with Latin America leading the way and West Africa also considered worth watching.
“Brazil remains the hot spot for FPSOs,” Adeosun said. “Opportunities also abound in Guyana, Namibia and Suriname.”
Podevyn said marketed activity is expected in the next two years offshore Guyana, with up to four FPSOs expected to be sanctioned by Exxon Mobil during 2023 and 2024.
“Elsewhere, increasing activity is expected offshore Angola with projects such as Agogo and Cameia. Activity in East and South East Asia remains strong, with four FPS awards expected in 2023, and these will be led by smaller redeployed FPSO units,” she said. “In terms of operators, interestingly Petrobras, which has always been the leading operator for FPS awards, will be overtaken by Exxon Mobil in 2023.”
Exxon Mobil Corp. is expected to award up to five floating platforms in 2023 and 2024, followed by Equinor with three awards, she added.