The oilfield services sector may see a slew of global oil and natural gas projects reach sanctioning heading into 2020, with high demand foreshadowing a shortage of qualified contractors and manpower.
About 250 oil and gas projects are likely to be sanctioned for development in 2020, compared to 160 in 2016, which means supplier constraints appear inevitable, according to Rystad Energy.
Researchers reviewed the global service market, floating production contractors, subsea installation players and fabricators of liquefied natural gas (LNG) facilities and found each subsector may struggle to keep up with the surge in demand for services, which in turn would cause project schedules to slip.
That would mean “fierce competition to secure capacity” by exploration and production (E&P) companies, researchers said.
There were 13 orders for floating production, storage and offloading vessels (FPSO) in 2019, with contractors as of mid-December raising the total number of units under construction or on order to 28. With 12 additional units now scheduled to move forward in 2020, construction timelines are likely to be pressured.
“Likewise in the installation market for subsea umbilicals, risers and flowlines (SURF), order books are swelling and players are racing to keep pace given the vast number of Christmas trees -- nearly 600 in all -- that were ordered in 2018 and 2019,” said researchers.
In addition, marine contractors already were scheduled to install about 2,485 miles of subsea oil and gas flowlines and umbilicals in 2020.
“Deepwater projects are now in a challenging situation as they are heavily dependent on SURF and FPSO contractors,” said Rystad’s Audun Martinsen, head of Oilfield Services. “Deepwater fields have been among the most sought after supply sources in recent years, next to the shale bonanza, and the increase in massive contract awards to players in the deepwater industry now could put constraints on further field sanctioning activity.”
Another complicating factor is the massive push by some offshore energy companies to move ahead with wind projects. Rystad estimated that 25 GW of offshore wind capacity is now operational, with the number poised to climb to more than 50 GW by 2022.
Demand for installing offshore wind power cables may hit an unprecedented 2,672 miles in 2022, versus 1,118 miles in 2019, surpassing the amount of subsea cable installation work needed by the oil and gas industry.
“Major SURF players like Subsea7 and Saipem are in a great position to capitalize on this trend, having managed already to diversify from being pure oil and gas players to become substantial drivers within the energy transition,” Martinsen said. “This segment will increasingly occupy vessel capacity from the installation fleet, likely causing a significant jump in service prices and exacerbating the contractual challenges faced by operators.
“Offshore gas and LNG projects will also add to the rising demand for services, as we forecast that these projects will require the installation of about 621 miles per year of export pipelines linking offshore fields to onshore facilities over the next few years.”
Capacity constraints for key vendors in the LNG market mean new projects could risk significant delays.
Ten LNG projects were sanctioned in 2019 and seven more are expected to reach final investment decisions for 2020.
The few established engineering, procurement and construction contractors qualified to tackle the mega-projects planned in the specialized LNG sector are close to being fully booked and are short of manpower.
“We expect to see pricing power strengthen further among service providers in 2020, particularly within certain segments,” Martinsen said. “This will drive up prices but also delay projects and production targets for E&P companies.
“We have seen that ambitious operators with a long-term focus have been able to secure vital capacity within the supply chain, but many other players will face difficult bottlenecks in 2020. If those companies want to deploy capital next year without any service capacity issues, they should consider drilling offshore infill wells or channeling investment into the shale sector in North America. Both of those markets still have substantial overcapacity within offshore rigs, pressure pumpers and sand providers.”