Strong demand in deepwater oil and gas development in Latin America will drive a thriving FPSO market over the next two years
A prospering floating production, storage and offloading (FPSO) market will be driven by strong deepwater oil and gas development in Brazil and Guyana over the next two years. Of 20 newbuild FPSOs that will be ordered in 2021 and 2022, 10 will be for Brazil and one for Guyana.
Energy analyst Rystad Energy says this FPSO boom will create “a very healthy project line-up for contractors, effectively doubling their pipeline.”
Year-to-date, six newbuild FPSOs have been contracted, with another four set for award before year’s end. Those four FPSO contracts are the Mero 4 and Parque das Baleias in Brazil, Limbayong in Malaysia, Liuhua 11-1 in China.
The 10 FPSO contract awards in 2021 – more than triple the three awards from 2020 – signal a rapid comeback in FPSO contracting activity, despite the Covid-19 pandemic, says Rystad Energy.
“It’s not that contractors were out of business, there are currently over 20 FPSOs under construction, one of which is likely to start-up already this year,” says Rystad Energy energy service research analyst Aleksander Erstad. “But after a weak 2020, the recent awards and the expected ones are doubling the pipeline, ensuring manufacturers will keep busy in the years ahead,” notes Mr Erstad.
In addition to the newbuild awards, contractors are supporting existing FPSO projects. Sembcorp Marine’s wholly owned Brazilian subsidiary, Estaleiro Jurong Aracruz (EJA), was awarded a US$175M amendment contract by Tupi BV to modify the FPSO P-71 for work at the Itapu field offshore Brazil.
Originally designed for the Tupi field, P-71 will be delivered in Q4 2022.
Evaluating bids
Brazilian energy giant Petrobras is evaluating bids to construct FPSOs for the Mero 4 and Parque das Baleias projects. For Mero 4, SBM Offshore was the sole bidder, while Yinson was the only player to bid for the Parque das Baleias FPSO. The muted interest comes as the FPSO supply chain is nearing full capacity, with several suppliers unable to take on new projects.
A joint venture between Saipem and Daewoo Shipbuilding and Marine Engineering (DSME) won a US$2.3Bn contract to supply the P-79 FPSO, to be deployed at the Buzios field in Brazil. DSME will build the hull and living quarters while Saipem will cover the topsides. The project will also give a boost to domestic Brazilian fabrication activity, as Petrobras requires a 25% local content share.
Acting as operator, with a 40% interest, Equinor announced FID in June on Phase 1 of the Bacalhau field in Brazil, triggering an US$8Bn investment. Other stakeholders in Bacalhau are ExxonMobil (40%), Petrogal Brasil (20%) and Brazilian government agency Pré-sal Petróleo SA (PPSA).
Latin America OSV Demand | ||
(excludes Mexico) | ||
Active | Laid up | |
PSV > 4,000 dwt | 98 | 30 |
PSV 2,000-3,999 dwt | 39 | 28 |
PSV < 2,000 dwt | 35 | 52 |
AHTS > 20,000 bhp | 11 | 0 |
AHTS 16,000-19,999 bhp | 15 | 10 |
AHTS 12,000-15,999 bhp | 8 | 13 |
AHTS 8,000-11,999 bhp | 9 | 6 |
AHTS 4,000-7,999 bhp | 13 | 32 |
AHT >8,000 bhp | 2 | 0 |
AHT 4,000-7,999 bhp | 7 | 4 |
Source: Braemar ACM Shipbroking/Westwood Global Energy |
Making Bacalhau an attractive proposition is the breakeven price “below US$35” per barrel and more than 1Bn barrels of recoverable reserves. The project’s carbon footprint – an increasingly important factor for international oil companies – is attractive, too. Equinor estimates the lifetime average CO2 intensity of the project will be less than 9 kg per barrel produced, 47% lower than the global average of 17 kg per barrel.
In conjunction with its FID, Equinor awarded an engineering, procurement, construction, and installation (EPCI) contract to Modec for the Bacalhau FPSO. Besides the EPCI work, Modec will operate the FPSO for the first year. It conducted the front-end-engineering-design (FEED) and pre-investment on the FPSO in early 2020 for Equinor, and the FPSO hull is already under construction by China’s Dalian Shipbuilding Industry. Once completed, the FPSO will be one of the largest in the world with oil processing capacity of 220,000 bpd, gas injection of 530 million cubic feet per day, water injection of 200,000 bpd, and 2M barrels of storage capacity.
The development will consist of 19 subsea wells tied back to an FPSO. Oil from the FPSO will be offloaded to shuttle tankers and the gas from Phase 1 will be re-injected in the reservoir.
EPCI for subsea pipelines and subsea production systems will be handled by the Subsea Integration Alliance, which includes Subsea 7 and Schlumberger unit OneSubsea, with offshore activities taking place from 2022 to 2023.
In a departure from its usual lease and operate agreements, Petrobras contracted two FPSOs, P-78 and P-79, under turnkey deals during Q2 2021. The switch to turnkey contracting opens up a wider set of potential suppliers, and Petrobras made the move as the leasing market for very large FPSOs is nearing full capacity.
The FPSOs will have identical specifications. P-78 was awarded to Singapore’s Keppel Shipyard under a turnkey contract valued at US$2.3Bn. Keppel subcontracted the construction of the hull and living quarters to South Korea’s Hyundai Heavy Industries for US$762M. Keppel will use its Brazilian shipyard, BrasFELS, for component fabrication to fulfill the 25% local content requirement.
Financing FPSO for Guyana
FPSO development in Guyana is moving ahead, too. SBM Offshore, which delivered the FPSO Liza Unity for Guyana in 2019, completed US$1.05Bn in project financing in June for the FPSO Prosperity, with a consortium of 11 international banks. Part of Payara development within the Stabroek block, the vessel will be moored in 1,900 m of water 200 km offshore Guyana. Esso Exploration and Production Guyana Limited, an affiliate of ExxonMobil, is the operator and holds a 45% interest in the Stabroek block. Other stakeholders are Hess Guyana Exploration (30%) and CNOOC Petroleum Guyana (25%).
ExxonMobil began producing oil from the South American country in 2019 and it represents its largest oil development outside of the Permian basin in New Mexico and Texas. Exxon estimates that its wells off the coast have the potential to produce a total 9Bn barrels of oil and anticipates that by 2025, it will be extracting 750,000 barrels of oil per day from the region.
Those plans, however, are being challenged in the country’s courts. The Institute for Energy Economics and Financial Analysis reported Guyanese citizens have filed a constitutional case against the multi-national giant, charging that the drilling expansion violates citizens’ constitutional rights to a healthy environment and the rights of future generations.
‘Healthier’ OSV requirements
As a deepwater market, with a greater reliance on floaters, Brazil requires large platform supply vessels (over 4,000 dwt) and more powerful anchor handlers (above 16,000 bhp).
With about 20 floaters actively drilling in the region and higher oil prices, Braemar ACM Shipbroking GM and head of subsea Michael Jankowski said there has been a notable increase in activity “resulting in decent support vessel requirements being generated.” This is the result of EPC spending tripling, from US$5Bn in a Covid-dampened 2020 to US$15Bn in 2021.
Speaking at Offshore Support Vessels Webinar – A Unique Global Outlook, a webinar jointly produced in June by Braemar ACM Shipbroking and Westwood Global Energy, Mr Jankowski said the recovering market has seen a healthy increase in utilisation levels, from 40-50% in 2020 to 65-70% currently.
“Guyanese citizens have filed a constitutional case charging that the drilling expansion violates citizens’ constitutional rights to a healthy environment”
He estimated EPC spending in Brazil at US$65Bn from 2021 to 2025. He called day rates in the region “competitive,” with large PSVs commanding “in the mid-teens” and large anchor handlers from the US$30,000 to as high as US$60,000 per day, depending on duration and work scope.
Opportunities in Guyana and Trinidad are attracting international OSV owners. “Harvey Gulf is a pretty good textbook example,” noted Mr Jankowski. He said the US-based OSV owner is very ambitious with expansion plans, setting up local content offices to “position themselves as best as possible. They are looking to take advantage of the upsurge in these areas.”
In summing up, Mr Jankowski said: “We expect good things from this region as a whole.”
Maersk Supply Service managing director Latin America Rafael Thome agrees. Mr Thome tells OSJ Maersk is “ramping up our activities in Brazil significantly.” In June, Maersk Supply Service secured its largest solutions contract yet from Libra Consortium for the pre-lay of 24 torpedo anchors for an FPSO for the Mero 2 project in the pre-salt of the Santos basin.
Mr Thome says the 13-month contract for EPCI with offshore execution will be carried out from June 2021 to July 2022.
As “one of the biggest projects of its kind” awarded in 2021, Mr Thome says the work scope will require two anchor-handling tug supply (AHTS) vessels, each with a bollard pull of 120 tonnes. He said the two AHTS vessels that will be deployed for the contract have not yet been nominated, but Maersk Supply Service has four vessels active in Brazil, two on long-term charter and two operating on the spot market. No decision has yet been made as to whether Maersk would bring in its own anchor handlers or use vessels sourced locally; such a charter would be a first for the OSV owner.
He says this “flagship project” could potentially “open doors” to other deepwater opportunities in Brazil, Guyana and West Africa.
"Offshore installation work we undertake here could be replicated for Guyana and West Africa," adds Mr Thome.
“The oil and gas sector in Brazil is recovering from last year’s crisis, so CBO has almost 100% of its fleet in operation,” says Marcelo Martins, technical and commercial director for Brazilian OSV owner CBO.
This led CBO to award a two-year charter in April to Germany’s United Offshore Support (UOS) to provide an AHTS vessel to support Petrobras.
The deal sees UOS return to Brazil after a four-year absence. UOS operated AHTS vessels in Brazil from 2010 to 2017 from its fleet of 13 AHTS.
“We expect good things from this region as a whole”
“Delivering the vessel to our partner CBO is a challenging but interesting task” says UOS project manager for vessel delivery Artur Buxbaum. “The preparations necessary to comply with local and Petrobras’ requirements are not the usual day-to-day routine, which created a fascinating project to work on.”
UOS followed its contract win in Brazil with a five-month charter for an anchor handler to support ENI Mexico, part of Eni SpA in the Mexican offshore market.
For the contract, UOS deployed the UT768CD design G.H. Atlantis in May to provide drilling support for the semi-submersible drilling rig Valaris 8505. UOS sees the introduction of the 200-tonne bollard pull G.H. Atlantis as a “potential game-changer for local operators”, with further possibilities for growth in the Mexican offshore market.
© 2023 Riviera Maritime Media Ltd.