About 250 new oil and gas projects are likely to be sanctioned for development in 2020, up from 160 in 2016, and bottlenecks among suppliers appear inevitable, according to Rystad Energy
According to the market report on the global service market, floating production contractors, subsea installation players and fabricators of liquefied natural gas facilities will all likely struggle to keep up with the surge in demand for their services, thus causing projects schedules to slip.
Contractors, having secured 13 new orders for floating production, storage and offloading vessels (FPSOs) in 2019, have thus raised the total number of units currently under construction or on order to 28. This means FPSO players will not be able to handle all 12 of the additional units that operators aim to move forward within 2020. Likewise in the installation market for subsea umbilicals, risers and flowlines (SURF), order books 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. Furthermore, marine contractors are already scheduled to install about 4000km of subsea oil and gas flowlines and umbilicals in 2020.
“Deepwater projects are now in a challenging situation as they are heavily dependent on SURF and FPSO contractors,” said Audun Martinsen, head of oilfield services at Rystad Energy. “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.”
Another complicating factor is the massive push by certain offshore energy companies to move ahead with offshore wind projects. Rystad Energy observes that 25GW of offshore wind capacity is now operational, and this is poised to double to more than 50GW by 2022. This implies a massive increase in demand for installation of offshore wind power cables, climbing from 1800 km in 2019 to an unprecedented 4300 km in 2022 – thereby surpassing the amount of subsea cable installation work from the oil and gas industry.
“Major SURF players like Subsea7 and Saipem are in a great position to capitalize on this trend, having managed already to diversify from being pure oil and gas players to become substantial drivers within the energy transition. 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,” Martinsen explained.
“We expect to see pricing power strengthen further among service providers in 2020, particularly within certain segments. This will drive up prices but also delay projects and production targets for E&P companies,” Martinsen predicted.