As exploration and production (E&P) activity in the offshore oil and gas industry gradually accelerates, the global subsea sector is set to face supply chain challenges, predicts controls technology company Proserv.
Industry consultants have outlined that more final investment decisions (FIDs) are now being made in the upstream industry. Rystad Energy presently predicts almost $30 billion of extra capital expenditure in the E&P subsea segment across the next six years, as areas such as South America, Europe, the Gulf of Mexico and West Africa experience increased spending.
Notably, Rystad also expects several regions, including South America and Europe, to see the majority of expenditure directed to brownfield sites.
Iain Smith, Proserv’s president, Subsea Controls, concurs: “FIDs are definitely now on an uptick but operators are still mindful of the recent downturn. They are choosing to target upgrades and tiebacks, as the financial outlay is smaller than for a major field development, as much of the infrastructure is already in place. This then provides the best and fastest route to a return on investment. Spending wisely and cautiously is the strategy at present.”
The Aberdeen based firm said it is advising international oil companies (IOCs) to consult early with suppliers to prevent lead times lengthening.
Proserv itself has seen increased orders for subsea tiebacks in recent months with contracts won from major oil companies in both the North Sea and the Gulf of Mexico, including from IOCs.
Another consultancy Wood Mackenzie has estimated that the supply chain capacity for subsea equipment is 25 percent lower than it was before the oil price dip in 2014, while utilization has declined by around 40 percent in the intervening period.
But the firm’s analysts nevertheless regard the subsea segment as more resilient than the rest of the offshore sector and predict healthy growth moving forwards, with an average demand of 300 subsea trees per annum over the next few years.
Rystad Energy recently released a report suggesting as many as 350 subsea trees will be installed annually by 2021.
Smith foresees a possible tightening of supply versus demand in the near future in the subsea market, “Subsea tiebacks are about a rapid return on investment, at the right field development cost, and, crucially, short lead times. The problem for operators is that a significant amount of manufacturing capacity for trees has been taken out of the market by firms closing production facilities.
“We have seen other oilfield service providers shut down factories and once this capacity is taken out, it isn’t easy to get it back. For our part, we are prepared for any spike in subsea activity, as we have actually expanded capacity at our Great Yarmouth base and crucially we have re-focused on our subsea controls offering.”
Rystad Energy has projected a $350 million rise in subsea equipment spending between 2019 and 2025 and Iain Smith has cautionary words for the rest of the industry.
“Our advice to IOCs and operators is ‘talk to people early in the procurement process.’ We are out there in the market and we are basing our predictions on our direct experience.
“There is spare capacity right now but we expect the supply chain to tighten, particularly in the tree manufacturing segment, and this could result in slower lead times and potential project delays.”