The ongoing cuts in capex and the continuing lower level of crude prices have led to considerable caution across the industry, with modest market growth in the short to medium term now expected.

Over the longer term, however, with world energy demand increasing and crude prices expected to recover, Infield Systems anticipates growth potential. Indeed, while Infield expects significantly lower levels of subsea tree installations during 2015 and 2016 compared to the previous two years, the likely increase in deep and ultradeepwater developments means the subsea tree market is expected to rebound from 2017 onward.

Africa is expected to lead the market in terms of subsea tree installations between 2015 and 2018 with 27% of the period’s installations, followed by Europe and Latin America holding 23% and 20% of global installations, respectively.

The remainder are split between North America, Australasia, Asia, and the Middle East and Caspian Sea region, which are expected to comprise a combined 30% of tree installations throughout the period to 2018.

Africa
The African market is expected to be driven mainly by the deepwater developments off West Africa, with Total leading the way on projects including Kaombo offshore Angola, Egina offshore Nigeria and Moho Nord Marine offshore Congo (Brazzaville). Offshore Ghana, Tullow’s Tweneboa (TEN) project and Eni’s Sankofa East project and developments within its Angolan East Hub in Block 15/06 also are expected to require a high number of tree installations during the 2015 to 2018 time frame.

In terms of capex, Africa is projected to form a 27% share of the global subsea trees installation expenditure during the 2015 to 2018 time frame, with the most capital-intensive subsea development expected to be the Egina development, with a peak subsea spend expected in 2017.

Europe
Subsea activity in Europe will continue to be driven by the North Sea, accounting for more than 90% of the region’s tree installations. The majority of such installations (205) are expected to be located within U.K. waters, where the average water depth of such installations is expected to be 162 m (532 ft).

The single largest project within the region in terms of installations is expected to be Kraken, east of Shetland. BP’s Quad 204 Schiehallion redevelopment and Statoil’s Gullfaks satellites also are expected to see a significant number of installations during the forecast period.

In terms of capex, Europe is expected to represent 6% of total global demand for tree installations over the next four years, with Kraken expected to be the most capital-intensive project taking place.

Latin America
Latin America’s subsea tree market will continue to be predominantly driven by Brazil, with the country comprising about 90% of future installations in the region. Brazil’s deep and ultradeepwater presalt and post-salt developments, such as Petrobras’ multifield Lula, Buzios and Iracema developments, are the main drivers of the sector. However, following the company’s corruption scandal, some contracts have been suspended and deliveries delayed, which in turn could affect Petrobras’ production targets.

For instance, in May a Brazilian federal court ordered the temporary suspension of the contract for 29 locally built presalt drillships. The potential cancellation of rig orders would force Petrobras to look outside Brazil for its future rig requirements, resulting in a knock-on effect as the installation of subsea trees might be delayed.

With respect to capex, Latin America is projected to hold the largest share of global tree installation, with a 35% share. The most capital-intensive development is expected to be the giant Lula Central Field, where tree installations are forecast to take place in up to 2,200 m (7,218 ft) of water.

North America
Influenced largely by a continuous focus on deepwater activity in the U.S. Gulf of Mexico (GoM), North America is expected to see around 15% of global subsea trees installations between 2015 and 2018. The U.S. is set to account for 87% of these awards, while Canada is anticipated to account for the remaining 13%.

Activity is expected to peak in 2017, driven by major projects such as Heidelberg and Chevron’s Jack-St. Malo in the GoM and Exxon Mobil’s Hibernia extensions offshore eastern Canada. With regards to capex, North America’s spending is anticipated to represent 25% of global tree installation capex over the forecast period, which will be driven by operators such as Shell, with a 24% share of the region’s subsea tree expenditure during those years.

Asia-Pacific
In the Asia-Pacific region, Australia is likely to be a major focus for subsea expenditure, driven by the country’s determination to become a major LNG exporting nation. Australasia (comprising Australia and New Zealand) is expected to account for 8% of global subsea tree installations and 3% of capex over the next four years.

Key megaprojects are the Chevron-led Greater Gorgon, Shell’s Prelude and Inpex’s Ichthys, the latter of which is Japan’s largest-ever investment in Australia. In May it was announced that the Ichthys project was on track to deliver first LNG cargoes by year-end 2016.

Projects in Malaysia, China and India will drive subsea tree installations, with the region expected to account for 6% and 3% shares of global installations and global expenditure, respectively, for the 2015 to 2018 period.

A peak in tree installations is expected in 2017, bolstered by developments in India such as ONGC’s projects in the Krishna Godavari Basin. So far, India’s major offshore developments have been in the shallow waters off the west coast due to the country’s limited exposure to subsea technology.

Middle East, Caspian
The Middle East and Caspian region, with 1% of global subsea tree installations as well as a 1% share of global subsea tree expenditure over the forecast period, is expected to remain a marginal market. Substantial growth in the number of installations from 2017 onward is forecast to be driven by Azerbaijan and Israel, with BP’s Shah Deniz Stage 2 project in Azerbaijan and Noble’s Leviathan project in Israel holding the potential to become key gas developments in the region.

Water depths
Breaking the market down further in terms of water depth, shallow-water developments (at depths up to 499 m [1,637 ft]) are expected to account for 40% of subsea tree installations over the forecast period, which is mostly focused within Europe. Installations in depths from 500 m to 999 m (1,640 ft to 3,278 ft) are expected to account for just 13% of installations taking place, mostly centered upon developments offshore West Africa.

Projects in water depths of 1,000 m (3,281 ft) and greater are likely to account for the remaining 47% of subsea tree installations, with Brazil, the U.S. and Angola anticipated to be key countries driving demand. Indeed, together these three countries are expected to hold a combined 36% share of global tree installations in depths of more than 1,000 m during the 2015 to 2018 time frame.

Outside the Middle East and Europe the offshore oil and gas market will focus significantly on deeper waters, with 78% of subsea tree installations over the 2015 to 2018 time frame expected to be located in water depths of 1,000 m or more, with 64% of installations in ultradeep water of more than 1,499 m (4,918 ft).

Indeed, while capex demand is likely to fall this year and next as installations are pushed to the latter half of the four-year forecast period and operators continue to trim their spending budgets given the low oil price outlook, over the long term substantial growth will be driven by both an increase in volume and the overall cost of subsea tree installations as projects move into deeper waters.

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