Signs of renewed optimism in the global offshore upstream supply chain
Head of CCUS Research
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After a difficult few years, the global offshore upstream supply chain saw continued signs of recovery in 2018. As operators and suppliers get back on their feet, 2019 will be a year of renewed optimism.
The downturn has no doubt left its mark on the industry. Squeezed budgets have led to a keener focus on cost reduction as projects become leaner and more efficient. Will the industry maintain this level of discipline as the market improves?
These are some of the indicators our supply chain team will monitor as they track the pace of recovery
1. Increasing subsea equipment volumes
Demand for subsea equipment is one of the best leading indicators of offshore market activity. Volumes are recovering and we expect an approximate 40% increase for 2018 in comparison to the previous year. It’s likely that a steady demand outlook will be sustained for the next few years, at an average of about 300 subsea trees per year. The supply chain will be encouraged by this recovery.
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2. Industry still in oversupply, but how long will this last?
The industry has come out of the other side of the longest depressed market in recent history. The supply side had to consolidate to survive, reducing manufacturing capacity by at least 25%.
As the market recovers, will there be enough capacity? As a whole, the subsea market remains oversupplied, but another busy year in 2019 could change that. We believe the window of opportunity to lock in preferential conditions will shrink as we exit 2019. Project teams with high spec demand will need to adapt quickly as the market shifts.
3. A new type of FPSO demand as operators focus on costs
Demand for floating production, storage and offloading vessels (FPSO) should be near the highest we have seen since before the downturn. Adopting modular and standardised FPSOs in shipbuilding lends itself to cost savings and efficiencies – ideally suited to operators looking to scale down and reduce costs.
Which region is driving the upswing in the FPSO market? Find out in our full report, Offshore upstream supply chain: 4 things to look for in 2019.
4. New contract models to cater for squeezed budgets
Gone are the days of overspending. Despite the market’s recovery, we expect current development budgets will have to stretch even further than before. Operators will be under added pressure to maintain project discipline, and we can expect to see alternative contracting models that reduce technical and financial risk to operators and optimise efficiency.
5. Floating rig day rates to make minimal gains
Day rates for floating rigs in the offshore space stayed low in 2018. How long will this last? Despite encouraging signs indicating the potential for higher exploration activity, we believe day rates will remain low throughout 2019, but we can expect the market to balance out in 2020.