Drawing upon Infield Systems’ Regional Perspectives Market Report series, here we highlight the key drivers, major projects and also the challenges likely to face operators and contractors in the near future. From a regional perspective, whilst the message is continuity across a number of key areas of production, the following two years are also expected to reflect changes in the geopolitical environment and the challenges that have emerged over recent months.
The forthcoming two years to 2016 are set to witness a number of industry firsts, whilst demand from a handful of giant capital intensive projects, the majority of which are forecast for completion beyond 2016, is expected to dominate global capital expenditure requirements over the period. However, whilst investment looks robust, rising input costs and technical challenges have resulted in several operators revisiting development plans and implementing more rigorous cost-saving strategies, with the previous year having seen an altogether more cautious attitude towards project planning. In addition, 2014 has witnessed some key changes to the geopolitical landscape, particularly across Eastern Europe and the Middle East, that now place a question mark above some potential projects going forwards.
Europe
Across the European region, the previous year has seen geopolitical challenges that have presented operators with a number of obstacles in progressing capital intensive projects. Despite this, Infield Systems believes that the region could account for the largest global share of capital expenditure over the 2015/2016 period, with a 22% market share, ahead of Latin America. Going forwards, Capex demand is expected to be dominated by a number of giant pipeline projects, led by the possible South Stream development. However, with Eastern European tensions high following the crisis in Ukraine and a stricter stance towards Russia being taken by European powers, the project now finds itself in limbo. At the time of writing, an EU order has suspended construction work on the Bulgarian sector of the pipeline following an investigation regarding the nature in which Gazprom has awarded its contracts and whilst Russia has announced its intention to press ahead with the development, the EU’s current order will inevitably affect the development’s timescale going forwards.
Other key pipeline projects across the European region over the 2015-2016 period are expected to include the Polarled development, with capital expenditure demand in 2015 forecast to be higher than on any other project taking place within the region. Q3 2014 saw a farm out deal between operator Statoil and Germany’s Wintershall worth some US$1.3bn, with a 13.2% stake within the Polarled development included in the deal. As part of the agreement Wintershall will also acquire 5% in the Gjoa field, 24.5% of the Vega field, 24% in Aasta Hansteen, 19% in Asterix, in addition to four exploration licenses in the Aasta Hansteen area . The platform component of the Aasta Hansteen, the first spar to be installed on the Norwegian Continental Shelf, is expected to demand the highest capital expenditure of any platform development taking place within the European region during the forthcoming two years.
Elsewhere, talks on the Galsi Spa export pipeline, connecting Algeria with the Southern European market have resumed between operators Edison and Sonatrach following a hiatus during the peak of the Ukraine crisis. At the time of writing, the project’s FID is expected towards the end of 2014, with the final development expected to hold the potential to transport eight billion cubic metres per year (cm/y) of natural gas, whilst 600km of the pipeline is planned to be subsea, at depths of up to 2,800 metres.
Middle East and Caspian Sea
The Middle East and Caspian is expected to comprise a relatively marginal 8% share of global capital expenditure demand during 2015 and 2016. Azerbaijan is expected to dominate spend within the region, driven by the giant Shah Deniz project. With the second phase of construction on the BP-led development expected to commence in 2015, Shah Deniz has been hailed as a pivotal project in terms of European energy security. Once completed, Shah Deniz 2 will bring an additional 16 billion cubic metres per year (bcma) of gas production to the market. Qatar is expected to see the second highest level of Capex spend within the Middle East and Caspian region over the 2015-2016 period, with a number of on-going capital intensive projects taking place, including Bul Hanine and the Qatar North Field development. Elsewhere, the Kashagan development offshore Kazakhstan, which had originally been scheduled to come on-stream in 2005, is expected to continue to be one of the most capital intensive projects in the region. Delays and cost overruns have blighted the project and have had wider implications for the Kazakh economy as a whole, with the government basing its economic forecast revenue on the success of the development. Delays, cost increases and a lowering of expected output have therefore had a profound impact, with February 2014 witnessing the devaluation of the Tenge by some 19%. Infield Systems also expects continued capital expenditure demand on the Noble operated Tamar and Leviathan field developments offshore Israel over the years 2015 and 2016. Whilst Infield Systems expects phase 2 of the Tamar development to come on-stream in 2016, the first phase of the project saw production commence in 2013, with Israel signing an agreement to supply some US$500 million of gas to Jordan over the course of 15 years. The previous year has also seen negotiations between Israel and Jordan on the Leviathan gas development, with a 15-year deal potentially worth billions of dollars.
Australasia
Infield System’s recently published Floating Production Systems Market Report to 2018 highlights that FLNG projects offshore North West Australia dominate Australasian capital expenditure demand over 2015 and 2016, with the region as a whole expected to form 5% of global offshore Capex demand over the two years. Despite this being the smallest regional share of demand globally over the period, Australasia is responsible for some of the most technologically advanced and capital intensive projects under development globally. The Inpex-operated Ichthys is anticipated to be the most capital intensive field development within the Australasia region and the sixth most capital intensive field development globally over the forthcoming two year period, with the entire field development expected to comprise 35% of total regional spend. July 2014 saw the launch of the Daewoo constructed hull for the project’s FPSO facility, with Infield Systems expecting installation to be completed by the end of 2016, with an on-stream date of early 2017. Shell’s Prelude is anticipated to be the second most capital intensive project taking place in the region over the forthcoming two years, with the whole field development expected to comprise 24% of Australasia’s total Capex demand over 2015 and 2016. Other key developments expected to require substantial capital expenditure over the following two years include Brecknock, Wheatstone and the Cash/Maple FLNG development.
With so much investment into these ground breaking and technologically challenging projects, Australia’s position within the global LNG market is at a crucial stage, with the country expected to overtake Qatar as the world’s largest exporter of natural gas by 2017. However, at the same time, Australia faces competition from Western markets. North America is expected to emerge as one of the key players within the Asia Pacific LNG sector, and with the expansion of the Panama Canal, larger Gulf Coast shipments will be able to enter the Asian markets as early as 2016. This, combined with the emerging East African LNG market over the longer term, which is expected to become key to supplying India’s east coast, will increase competition for Australia’s exports, with importers likely to favour more short term contracts in the future.
North America
Offshore North America Infield Systems expects a total of 154 field developments to require capital expenditure during the years 2015 and 2016, compared to the previous two years where 184 fields attracted investment. In operator terms, Infield Systems expects ExxonMobil to lead capital investment, driven by the Hebron project offshore Canada, with significant expenditure also expected on the Hadrian North and phase 1 of the Walker Ridge Julia development, where the first phase of the field’s development was sanctioned in May 2013. Shell is expected to hold the second largest share of regional capital expenditure over the forthcoming two years, with almost 50% of the operator’s expected Capex requirement for 2015 and 2016 driven by the Stones project. Stones’ associated FPSO installation is expected to be the deepest platform installation globally taking place within the period at some 2,296 metres. The next year is also likely to see the installation of Anadarko’s Heidelberg Spar; the second of the operator’s duplicate spar designs installed within the area following the success of Lucius, which saw installation in February of 2014. Chevron is expected to commence its front end engineering and design for the Buckskin field during the course of 2015, with June 2014 seeing the operator hit its final depth on the field’s second appraisal well. Outside of the Gulf of Mexico Infield Systems expects the forthcoming two years to also witness the installation of two developments offshore Canada, including the most capital intensive project of the period; the ExxonMobil Hebron GBS platform. July 2014 saw the platform towed out to the field, with installation expected in late 2015. Infield Systems also expects the Husky-operated White Rose Extension project to see completion before the close of 2016.
Latin America
The Latin American region, led by Brazil, is expected to require the second largest share of global capital expenditure over the forthcoming two years after Europe. Offshore Brazil, Infield Systems expects a marginal increase in Capex demand compared with the 2013-2014 period, with a total of 102 fields expected to attract investment. NOC Petrobras is anticipated to comprise a 95% share of the total market. The operator’s multiphase Buzios development is anticipated to be a key driver of demand over the years 2015 and 2016. October 2014 saw the P-76 hull of Buzios phase 1 leave China’s Cosco Shipyard, with topside fabrication and integration to take place locally at the Paraguacu shipyard under a Technip led consortium. The Buzios platforms comprise part of the 13 FPSO licence granted to Petrobras during 2014 for its pre-salt developments. The Lula Central field development is expected to require the second highest Capex investment by the operator over the forthcoming two years, whilst significant expenditure is also expected on Iracema North and Lula Alto.
The previous year has also seen a sense of renewed optimism regarding the future of Mexico’s offshore industry. With the new law to end the state monopoly on hydrocarbon reserves, it is hoped that Mexico’s output will be boosted by 20% to 3 million bpd by 2018. Indeed, it seems that the reforms could not come soon enough, with Pemex forced to cut its 2014 year end output goal to 2.35 million bpd (the country’s output had been as high as 3.5 million bpd before the giant Cantarell field began to see production decline from the mid-2000s). The initial public bid round is expected during the first half of 2015, with a number of key joint venture opportunities expected to be on offer. Statoil is one such player, with an eye on Mexico’s deepwater offerings in particular. Pemex is expected to retain only a small proportion of deepwater areas, around northern Perdido and the Lakach fields. Over the next two years Infield Systems expects capital expenditure offshore Mexico to focus predominantly upon the Lackach field, with investment likely to be required on a further nine fields up to the close of 2016.
Africa
Africa is expected to hold a 16% share of global capital expenditure demand over the forthcoming two years, a slight growth from the 13% seen over the previous two years. Whilst West Africa is anticipated to remain the key market, led by deepwater developments offshore Angola, the next two years are also expected to witness development commence on key South and East African projects; with fields such as Prosperidade and Prosperidade Northwest likely to become integral to the global LNG market going forwards. Simultaneously, Infield Systems also expects continued development within the Mossel Bay area offshore South Africa, whilst the long awaited Kudu field, offshore Namibia, which was acquired by UK Independent Tullow in 2004, is expected to see a sanction decision take place in early 2015. Offshore North Africa, Infield Systems also forecasts significant Capex demand growth, driven by a number of export pipeline projects including the Galsi Spa pipeline running from Algeria to Sardinia and the export pipeline between Noble’s Leviathan field and Egypt’s Idku LNG Terminal.
Within the West African sub-region, Angola is anticipated to account for 46% of offshore Capex demand over the 2015-16 period; a slight decrease on its 56% share of demand during 2013-14. The most capital intensive development offshore Angola during the forecast timeframe is expected to be Total’s Kaombo 1 (Gindungo) project, with Capex demand also forecast to commence during this timeframe for the second phase of the development, to be focused upon the Mostarda field. The previous year saw operator Total cut project costs on Kaombo, which with the project having seen repeat delays on the grounds of economic viability. Now, with a reported US$4 bn cut off for the project’s final bill, the operator hopes to move ahead with the development, with first oil due for 2017. Other key projects offshore Angola are expected to include Cabaca Southeast, which includes an FPSO installation, under operator Eni. Cabaca Southeast forms part of the East Hub project as a satellite to the Cabaca North fields, which combined are expected to deliver some 230 million barrels of oil to the market in 2016. The Mufumeira extension project, within Block 0, is also expected to see significant expenditure over the forthcoming two years by operator Chevron and partners Sonangol, Total and Eni. Elsewhere within the West African region, Infield Systems expects increasing expenditure offshore Ghana and Congo (Brazzaville) in particular; driven by the TEN developments and Moho Nord Marine respectively. Total’s giant Egina development offshore Nigeria is anticipated to be the single most capital intensive project offshore West Africa over the years 2015-2016; acting to drive down Angola’s leading, albeit still dominant share in the region.
Asia
Asia is one of the primary regions driving global energy demand and is expected to be central to the growth of the global natural gas market in particular. The region is expected to account for 18% of global capital expenditure demand over the 2015-2016 period , predominantly driven by a number of large-scale LNG developments and capital intensive export pipeline projects within the South East Asian region, whilst offshore China significant expenditure is forecast for the Ningbo 22-1 (Xihu Trough) field and associated pipeline development going forwards to 2016. In operator terms, NOCs are anticipated to continue to dominate the market, with Petronas leading investment over the next two years ahead of ONGC and CNOOC. Chevron, with its large presence offshore Indonesia, is expected to hold the largest Capex spend for an IOC in the region over the period to 2016, followed by Shell with its capital intensive Gumusut-Kakap project offshore Malaysia and its activities alongside the Brunei Government.
South East Asia is also the frontrunner for FLNG development, and whilst a larger proportion of FLNG Capex demand is anticipated for the Australasian region (56% of total global FLNG expenditure over the 2015-2016 timeframe), South East Asia is expected to witness the first global FLNG installation in the Petronas PFLNG1 facility. The hull for the FLNG FPSO was launched from the DSME Shipyard in South Korea in April 2014 and will be located some 180 kilometres from shore on the Kanowit field. Once on-stream, currently expected for the end of 2015 or early 2016, PFLNG1 is expected to produce 1.2 million tonnes of LNG per year. Indeed, with February 2014 seeing the final investment decision on the PFLNG2 facility, NOC Petronas appears to have confidence in the utilisation of FLNG technology going forwards to the end of the decade. Altogether, South East Asia is forecast to comprise 27% of global FLNG expenditure demand going forwards to 2016, with key projects including the Petronas FLNG2 development offshore Malaysia and the Abadi FLNG FPSO offshore Indonesia. The operator of the Abadi project, Inpex, is now targeting 2017 for start-up of the project.
The challenges and cost implications associated with moving production into ever deeper, more remote and environmentally demanding waters, coupled with uncertain energy prices, have caused several operators to streamline development plans over the previous two years. In addition, the previous year has also witnessed an increase in geopolitical challenges, threatening the certainty of a number of developments, in particular those projects that demand intra-regional co-operation. However, at the same time, with a more cost-conscious outlook by operators and contractors new solutions such as standardisation of design, used across Petrobras’ new-build FPSO campaign, are also being more widely implemented. We are also now witnessing operators move ahead with a number of developments that have previously seen delays, whilst the years 2015 and 2016 are also expected to see the increasing use of new technologies, most notably FLNG, and a number of ground-breaking developments will finally enter production.