The Global Market For FPSOs Is Set To Pump, But Not Without Some Headwinds

Sumit Dutta

West Africa and Brazil are likely to see the highest investments in FPSO vessels in the medium term due to oil discoveries in the so-called pre-salt basins.

According to a study released in the year by the International Maritime Associates (IMA), it forecasts orders of production floaters to be 40% higher between 2013 and 2017 compared to the previous five years. It expects 70% of that to be for FPSOs.

Africa, dominated by West Africa, currently has the second most operational FPSO vessels in operation - accounting for about one-quarter of the 156 vessels globally and second only to Brazil. Chairman and managing director of Malaysian manufacturer Yinson Holdings, Lim Han Weng, recently stated that competition in Africa was intense from both international and domestic firms, but Africa still offered good long-term growth prospects.

According to Jerry Joynson, Director, Proposals &Technology Development at SBM Offshore, while onshore oil production is in slow decline, world oil demand is increasing. The numbers are significant, with an increase in offshore production from 21 to 27 million b/d between 2008 and 2013. This trend is continuing, which adds up to a lot of new facilities required. The major growth opportunity is in deeper water which guarantees a healthy demand for floating production solutions for quite some time. And around 60% of those are predicted to be FPSO projects, both new-build and conversions," he says.

This can only mean an upturn in fortunes for the FPSO sector as Jason Waldie, Associate Director for Douglas Westwood, explains that FPSO projects are returning to pre-2008 level and a turn of fortunes for the sector is imminent.

Jim McCaul, head of the IMA, FPSOs are expected to account for around 70% of future production floater orders and projects capital expenditure to procure this equipment to be in the range of $90 to $130 billion over the next five years.

But robust prospects are facing headwinds.


According to an analyst note by Malaysia’s Maybank Investment Bank, "While prospects for the global FPSO industry are healthy, costs are steadily creeping up. This is a growing concern, impacted by: (i) inflation and (ii) the requirement for local content (e.g. labour, equipment). Inflation is expected to rise by 5% annually. At the same time, domestic regulations for local labour, products and services, which will single-handedly drive costs up fast, could affect the investment returns of an FPSO charter if not handled properly."

It’s worth pointing out that both Brazil and Nigeria both have local content requirement for all energy operations aimed to foster skills transfer and expand economic benefits from resource extraction activities.

Furthermore, Maybank Investment Bank points out that the pool of competent, experienced staff is shrinking, and there is thus an urgent need to address the imbalances.

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Sumit Dutta heads up Marketing at Oil & Gas IQ. Contact him at Twitter or Google Plus