Buoyant offshore oil: EPC spending to total US$276Bn from 2022-2026

Strong spending to 2026

Additional good news for OSV owners is that the upturn in offshore EPC activity is expected to be sustained for the next five years, as the oil and gas sector tries to make up for lost time during Covid, which caused energy demand destruction, an oil price crash and reined in spending.

“The offshore O&G sector is primed for a flurry of investment to make up for limited spending over the last few years,” said Westwood Global Energy. “The EIA predicts the Brent oil price to average US$104/bbl and US$94/bbl in 2022 and 2023, respectively, setting the tone for an upcycle.”

Based on data from Westwood’s SubseaLogix and PlatformLogix market analytic tools, the energy analyst is forecasting a sustained upcycle over the 2022-26, “in the absence of any significant shocks in O&G demand, with offshore EPC spend expected to total US$276Bn, a 71% increase compared to the preceding five-year period.”

It expects expenditure over the five-year period to be dominated by Asia, the Middle East and Latin America, but West Africa could attract investment to develop untapped gas reserves, “as Europe urgently seeks alternative gas supplies to replace Russian feedstock,” noted the analysts.

“There is a renewed focus on renewables in the energy transition”

Inflation slows development

However, despite an increase in early-stage engagement of the supply chain by E&Ps and a steady growth in the number of pre-sanction projects, the optimism for a bumper year has been somewhat tempered, pointed out Westwood Global Energy in its analysis.

Inflation, supply chain issues and limited resources appear to be the culprits, as highlighted by presenters at the Annual Offshore Support Journal Conference.

“From my memory, the last time we had decent business was 2014,” said Seacor Marine chief executive and president John Gellert during his keynote address at the conference. “Seven, eight years is a long time; we’ve been managing contraction, managing costs and really trying to do the most with the least amount of cost and resources, and we are now entering a period where things are really growing,” he said.

Following the prolonged contraction in offshore oil and gas, Mr Gellert said there was a limited asset base of people and vessels and limited available capital to reactivate vessels from layup.

“The pandemic is largely behind us and there has been a change in client requirements,” said Mr Gellert. “Demand is rising and prices are rebounding, but opex costs are higher and there are shortages in the labour market.”

“EPC contracts valued at US$26Bn will be awarded for H1 2022”

Seacor is addressing these challenges by keeping full utilisation of its fleet and raising seafarer’s wages to retain them, owing to the difficulties involved in finding qualified people and the time it takes to train and certify them.

Added Mr Gellert: “The overall challenge is how we manage growth using current assets.”

In its analysis of the market, Westwood Global Energy also fingered inflation for slowing development, saying: “This decline is due to delays in project sanctioning, as some operators remodel project economics due to supply chain inflationary pressures that could range between 10% to 15% for subsea equipment and production platforms.

“It’s been challenging for the supply chain to scale up quickly after being forced to downsize during the pandemic. This has led to limited participants in some EPC tenders, causing operators to continually extend bid deadline dates or retender for projects to increase competition, forcing a delay on the project-sanctioning timeline,” said the UK energy analyst.

Some major projects that have had FID and EPC awards delayed from H1 2022 include Equinor’s Rosebank development (UK), TotalEnergies’ Cameia-Golfinho project (Angola), and the Preowei field (Nigeria), PetroVietnam’s Block B project (Vietnam), as well as Petronas’ Bestari (Malaysia). While these delayed projects are expected to be sanctioned over the next 18 months, projects such as Shell’s Linnorm (Norway) and Aker Energy’s Pecan (Ghana) have been shelved indefinitely. Shell is exploring alternative development concepts for its Linnorm field, while Aker Energy is seeking potential farm-in partners for Lukoil’s stake in the Pecan field, due to uncertainties surrounding the complexity of possible future Western sanctions against the Russian-based operator.