Subsea tree installations will pick up substantially over the next five years, but an influx of offshore construction vessel newbuilds into the fleet will stifle utilisation levels
Subsea tree installations are expected to grow by an average of 8% per year for the global offshore industry over coming years, as operators boost expenditures substantially on subsea equipment and installations. An influx of offshore construction vessel (OCV) newbuilds into the fleet this year however, will keep utilisation rates from recovering until 2021, according to analysts at Oslo-based energy research firm Rystad Energy.
Activity levels fell to only 240 subsea trees installed globally in 2017, the lowest level since the turn of the century. However, Rystad Energy forecasts that over 350 subsea trees will be installed per year starting 2021.
The market for subsea trees – so-called Xmas trees – is expected to grow by 8% per year in the period 2017 to 2023. The UK and Norway will drive growth through 2021, after which South America will take the lead.
“As the oil price has recovered since 2016, the subsea market has shown clear signs of improvement,” said Rystad Energy analyst Henning Bjørvik. “Subsea tree installations can be seen as a main driver for this growth. We expect a substantial increase in demand in coming years,” said Mr Bjørvik.
Global demand for oilfield services is projected to hit US$642Bn in 2019, of which the subsea market will account for 4%. “The real driver of vessel demand over the next year will be installation of subsea equipment, but we also see a significant increase in subsea umbilicals, risers and flowlines (SURF) installation,” said,” Mr Bjørvik. “Especially for North Sea, we see a lot of subsea tie-back projects coming in from 2019 and this will increase the demand for rigid-reel lay vessels in the coming years,” he noted.
“We see a new wave of subsea developments in the coming years, supported by effective cost cutting measures and co-operation between suppliers and E&Ps”
With regards to the offshore construction vessel market, Rystad Energy forecasts a continued low utilisation rate up to 2022-2023. Mr Bjørvik said: “Even though we foresee the demand will pick up from 2019, we still expect the supply side to continue to grow into 2019, with newbuilds coming into the market now more than four years after the oil price collapse. We therefore expect the utilisation to remain at around 50% for the next two years before picking up.”
Rystad Energy expects the subsea market to increase significantly in the years to come, with an average annual growth of 10% in exploration and production (E&P) spending for subsea equipment and installation from 2018 through 2023. Much of the growth is expected to come from the subsea equipment market (up 12% per year) and the SURF market (up 11% per year).
“We now see a new wave of subsea developments in the coming years, supported by effective cost cutting measures and co-operation between suppliers and E&Ps,” Mr Bjørvik said.
Norway and the UK benefit from having well-established offshore infrastructure. Many marginal fields can draw advantages from their close proximity to existing facilities and can become commercially viable through subsea satellite developments.
Over the next four years in Norway and the UK, Rystad Energy expects 53% of the offshore greenfield E&P expenditure to be for subsea tie-back projects. This is a significant increase from 30% in the 2010-2018 period.
Norway-based oil major Equinor, which is the second largest operator of subsea trees after Brasil’s Petrobras and has a large subsea portfolio, is expected to increase its subsea expenditure significantly during 2019, with as much as 93% of spending being for projects on the Norwegian continental shelf. The majority of this expenditure is projected to be for subsea tie-backs.