Some of the highest value structures in the global fleet are Floating Production Storage and Offloading (FPSO) units. Although a small sector in terms of numbers (there are 187 in the fleet and 43 on order), high unit values make this an increasingly significant sector in terms of investment. In the years 2004-08, FPSO spending totalled $30bn, 4% of total investment in new units. In the past 5 years, these figures have climbed to $39bn and 10%, approaching the $44bn in-vested in tankers in the same period.
FPSOs have become the unit of choice for the production, storage and processing of hydro-carbons on the growing number of deepwater, remote or marginal field developments. This is a heterogeneous sector where designs, applications and therefore costs vary significantly according to environmental and commercial factors, including product type, required storage capacity and field life.
Three broad sectors have developed: purpose-built newbuilds (NBs), field-specific conversions and non-field-specific conversions/re-deployments. Capital investment and construction time are generally greater for NBs, while purpose-built tanker conversions are characterised by medium/high capital costs and can take anywhere between 1-3 years. The third sector typically sees shorter lease periods and the potential for multiple redeployments.
Oil Price Trends
The graph shows investment in the FPSO sector over the past decade. Before 2005 we saw contracting levels in the region of 5-10 per year and annual investment below $3bn. In 2005 oil prices breached $50/bbl (a benchmark above which deepwater production is typically said to be commercially viable) and in that year we recorded 16 new contracts of $7bn. In 2006 oil prices levelled off and investment fell back, but in 2007, with oil prices averaging over $90/bbl, we recorded 26 new contracts of $11b; a number of new entrants were attracted to the market, though some speculative orders have proved to be unviable.
Brazil & Gas
In 2008-09 oil prices and contracting levels fell again, but in 2010, as the oil price climbed towards $100/bbl, investment was lifted by orders from Petrobras for 8 pre-salt FPSOs in Brazil and from Shell for the Prelude FLNG. Since then the oil price has remained above $100/bbl but investment has reverted to the post-2005 average of around $7bn p.a., perhaps an indication that once a benchmark oil price is exceeded investment decisions are limited by other factors such as oil company budgets and underlying development capacity. Nonetheless, recent years have been characterised by higher unit value NBs and investment in the gas sector.
Today, based on planned projects we expect the positive investment trend to continue. Although exact numbers are subject to the timing of final investment decisions, it looks likely that in the long-term FPSOs will continue to hold their elevated share of global investment.