Tieback Bounce-back: Subsea Market on the Rise

After enduring many hardships the past few years, the subsea market is finally back on the uptick and looks to be continuing to grow.

With COVID-19 slowing down, it makes sense that the subsea market is returning to its previous production. Operators no longer have to adhere to pandemic-era policies and energy security is high on the agendas of governments globally. However, a new trend is emerging as subsea tree demand for subsea tieback projects is expected to eclipse that of FPSO projects.

“After the oil price crash back in 2014, the market was going down in terms of subsea tree awards, until about 2017 when the market started turning around again. But as soon as it started to recover from the downturn, COVID happened, leading to projects getting scaled down, canceled or pushed to the right, but now it looks like everything is coming back on track,” Abhinav Parashar, senior analyst at Rystad, told Hart Energy. “Within the next five years, we'll probably see more than 300 subsea trees that will be installed annually… which is a really good indication that the subsea market is in very good shape.”

Subsea trees are installed on top of wellheads to monitor the production of a subsea well, as well as manage well injections such as gases and liquids.

From 2011 to 2020, 49% of total subsea trees installed globally were for FPSO projects worldwide as opposed to 46% for subsea tieback projects. Operators are looking to change that dynamic soon, as subsea tieback projects are expected to account for 51% of 3,100 trees to be installed in this decade, compared to 44% that will be installed for FPSO projects.

Subsea tieback project sanctioning is expected to reach an all-time high in 2024. Rystad predicts more than 70 subsea tieback projects being sanctioned that year, with over 300 subsea trees being installed across all facility types annually from 2022 to 2027.

Subsea typically require $700 million to $1.5 billion in capital investments, whereas FPSO projects typically cost between $4 billion and $5 billion dollars. Tiebacks are also created using the previous infrastructure, making it a comparably easier and faster solution than an FPSO to add a subsea tree and tie it back to an existing platform. These allow tiebacks to be operational much faster than floaters.

“Operators are getting more cost intrinsic; although free cash flow is record high, investment levels have not picked up at the same pace as it would have done in a similar situation years ago,” Parashar told Hart Energy. “Prior to the 2014 oil price crash, the oil and gas supply chain benefitted from major reinvestments into oil and gas from the operators, but now with energy systems being under scrutiny and traditional oil and gas operators investing in renewable energy sources and low carbon solutions, operators are focusing on how to maximize their output with low cost in oil and gas.”

Room to grow

“Within the next five years, we'll probably see more than 300 subsea trees that will be installed annually… which is a really good indication that the subsea market is in very good shape.” –Abhinav Parashar of Rystad

Despite the growth the subsea tieback market is seeing, the market for subsea trees is served by only five original equipment manufacturers: TechnipFMC, Schlumberger’s OneSubsea, Aker Solutions, Baker Hughes and Dril-Quip.

The hold these companies have on the market continues to grow as they’ve begun to partner up in frame agreements with operators. The five companies have created alliances with SURF players and are now offering integrated solutions – something that could down the line, in a tight market, shift pricing power over to the service companies. 

Regardless of the difficulties that smaller suppliers are beginning to face to secure contracts, hotspots like Norway, which has been active in the energy industry since the 1970s, have recently benefited from a tax relief cut by their government to support operators affected by the pandemic. Brazil has also benefited from similar policies. Aside from those powerhouses, a few other nations have large projects on the horizon. 

In Turkey, the Turkish Petroleum Corp. has discovered a large natural gas field in the Black Sea, naming it the Sakarya gas field. Other countries on the rise within the oil and gas field include Suriname, with the Kwaskwasi Oil Field; Namibia, with the Venus Oil Field that can rival Brazil’s largest field, Buzios; and Guyana, a country that was late to the oil and gas party but has been responsible for major E&P activity in the past few years.

“Exploration [in Guyana] started back in 2015… Exxon Mobil and its partners actually got a stake in the Stabroek block there, and they started exploring back in 2015 and got some major fields called Liza Phase 1 and 2,” Parashar said. “But after that, they have been continuously exploring and have so far found around 28 discoveries in Guyana itself. Because of that, in [the] next 10 years, Guyana will be the third subsea hotspot in the market after Norway and Brazil.”