The Prospects of the Subsea Oil & Gas Industry

The recovery of oil prices this year brought about a welcome recovery in offshore drilling activity. Offshore oil and gas projects in many parts of the world become increasingly competitive after the industry has slashed costs and optimised designs during the difficult years of the downturn.

Now the industry hopes that the still slow but noticeable recovery in offshore exploration and production will trickle down to the supply chain with higher demand for subsea technology and services.

Analysts have been estimating that the global market for offshore vessels, autonomous underwater vehicles (AUVs), and remotely operated underwater vehicles (ROVs) will continue to grow in the coming years.

The world’s offshore support vessel market in for oil, gas, and offshore wind operations was worth US$19.21 billion in 2017, and is expected to grow to US$25.66 billion by 2023, at a compound annual growth rate (CAGR) of just over 5 percent between 2018 and 2023, according to a report by MarketsAndMarkets. Deepwater exploration offshore Europe and the Middle East are seen driving growth, alongside offshore wind farm deployment in China and the United States, the report says.

The world’s AUV market is expected to grow by 37 percent through 2022, with the largest growth—74 percent—in the commercial sectors as oil and gas operations continue to adopt AUVs, Westwood Global Energy Group said in a report in June 2018. Site survey, pipeline survey, pipeline inspection, and life of field inspection are the primary applications of AUV in the oil and gas industry. The development of subsea hosting and subsea intervention technology will boost demand for oil and gas applications, according to Westwood.

In the global work-class ROV market, which is closely linked to the state of the offshore oil and gas sector, demand for traditional oil and gas applications as well as new offshore support roles will drive demand recovery between 2019 and 2023, Westwood said in September. Utilisation rates dropped in 2017 to a low of 32 percent, down from 55 percent in 2014. Utilisation is expected to recover to 50 percent by 2023, according to Westwood. Drilling support will be the biggest market for ROV, accounting for 40 percent of total expenditure and growing at a rate of 6 percent per year. Activity in Latin America—Brazil, Guyana, and the Falkland Islands—will drive the market. Demand for Inspection, Maintenance and Repair (IMR) support will rise by 11 percent to US$2.2 billion by 2023, due to ageing installed infrastructure, Westwood reckons.

The floating production market is also back, following a few years of “virtual hibernation” during the downturn, Rystad Energy said in October. In 2017, there were six new floating production storage and offloading (FPSO) orders worldwide. Higher oil prices this year, technological advancements, and reduced costs helped the market pick up further momentum in 2018. Rystad Energy expects that more than 30 FPSO projects could reach final investment decision (FID) between 2019 and 2021.

Meanwhile, offshore drilling activity is picking up as costs continue to drop, Rystad says. Project sanctioning is set to rise from the lows in 2016. Last year, 25 offshore projects were approved globally, including the Leviathan gas field off Israel, the Liza oil field offshore Guyana, the Mero (Pilot) and Sepia fields offshore Brazil, Coral FLNG off Mozambique, and Mad Dog Phase 2 in the US Gulf of Mexico. Over the next three years, nearly 200 projects are planned to be launched. In 2018 alone, sanctioning activity is expected to rise by 190 percent compared to 2017, Rystad Energy said.

“The uptick in offshore activity combined with industry consolidations gives reason to believe that backlogs are building up fast for subsea suppliers which will start to push up prices again. Subsea companies exposed to the North Sea, which is leading the offshore comeback, are best positioned to experience incoming contracts at higher rates,” Rystad analysts said.

In the UK offshore industry, operating costs have halved and are now being sustained at around $15/boe, Oil & Gas UK said in September. More major new projects were sanctioned between January and early September 2018 than the combined number of approved projects over the past two years, Oil & Gas UK said, but noted that drilling activity needs to further increase to boost the supply chain.

Over the past couple of months, new developments were approved in the UKCS and Total made a major gas discovery in the Glendronach prospect West of Shetland. The discovery is the biggest conventional discovery in the UK since Culzean in 2008, Wood Mackenzie said, commenting on the news. West of Shetland is now a key growth area in the UK, but it is also underexplored, said Kevin Swann, senior research analyst, North Sea.

“The exciting Lyon and Blackrock prospects will be drilled next year, and material discoveries like Glendronach will whet the appetites of those looking to invest,” Swann said.

Investment and drilling activity needs to further increase to fill in the project gap left by the downturn, but the UKCS is on the right track.