The past 18 months have been a tumultuous time for the offshore sector, and industry players continue to look ahead with trepidation, but the global offshore capex forecast to 2020 has long-term promise.

With the oil price-induced budget cuts over the past year, global offshore capex is still expected to fall significantly during 2016. However, after bottoming out this year, the market shows potential in the long run as a result of increased project volume.

Pipelines
Looking at capex by market sector, the pipeline market is expected to account for the largest share of global capex demand going forward, accounting for 44% of spend between 2016 and 2020.

The subsea umbilicals, risers and flowlines market could drive pipeline demand over the forthcoming period as the industry sees a growing number of returning deepwater developments, especially offshore Brazil and West Africa. Up to 260 companies could invest in offshore pipeline projects globally, with Petrobras anticipated to spend the most.

A key pipeline project going forward is BP’s Shah Deniz (Phase 2) development, which is expected to add a further 16 Bcm (565 Bcf) per annum of gas production to the about 9 Bcm (317 Bcf) per annum produced by Shah Deniz (Phase 1). This capital-intensive $28 billion development phase will inaugurate what is known as Europe’s Southern Gas Corridor, with development of strategic pipeline infrastructure ongoing to export up to 6 Bcm (211 Bcf) per annum of gas to Turkey and a further 10 Bcm (353 Bcf) per annum of gas to markets in Europe, primarily Italy.

Floating production
Since the collapse in global commodity prices, a number of high-profile floating production system (FPS) projects have experienced delays or cancellations, and question marks hang over several other such developments where a final investment decision (FID) has yet to be given.

Despite this, forecast demand within the FPS sector remains relatively strong, with floating systems projected to make up a 15% share of total global capex over the 2016-2020 time frame. In the near term, floating production facility demand is expected to be driven by a number of capital-intensive projects that received a FID prior to the decline in crude prices, such as Total’s Kaombo Complex offshore Angola, Chevron’s delayed Big Foot Field in the U.S. Gulf of Mexico (GoM) and Petrobras’ multiphase Buzios FPSO project.

A recent and impactive setback for the FPS market was the announcement by Noble Energy and its partners concerning the ultradeepwater Leviathan development in the eastern Mediterranean Sea offshore Israel. The project is now expected to be developed via a subsea production system tied back to a fixed platform as opposed to the original concept based around a joint floating LNG and FPSO development plan.

The replacement plan envisages up to eight production wells to be tied back to a single platform, which could save the operators an estimated $1 billion in capex. One of Noble’s partners, the Delek Group, said it expects an FID by fourth-quarter 2016 for the purpose of enabling first gas production from the Leviathan project in fourth-quarter 2019.

Fixed platforms
The fixed platform market, meanwhile, is expected to remain relatively resilient over the forthcoming five-year period as declining demand in the GoM and North Sea is offset by continued high activity levels in Asia and the Middle East. There is also some potential growth within Africa.

The continued long-term drive into deeper, harsher waters would suggest greater demand in the floating production platform market as opposed to the fixed platform sector. However, in the current low oil price environment opportunities are likely to remain in lower cost shallow-water provinces, where fixed installations are usually better suited.

Johan Sverdrup is the standout development in the fixed platform sector and is expected to dominate demand over the next five years, accounting for 90% of Norway’s fixed platform capex demand between 2016 and 2020.

In September 2015 operator Statoil significantly cut its capex estimates for the project amid keen price competition among contractors. This resulted in the budget for the full-field development being reduced from $20 billion to $25 billion to $18 billion to $22 billion. Altogether, the field is estimated to hold between 1.7 Bboe and 3.3 Bboe, with the development expected to consist of a processing platform, drilling platform, riser platform and living quarters, all of which will be bridge-linked.

Subsea
Within the subsea sector, short-term capex is expected to be hit by the ongoing dramatic slowdown in the subsea tree market.

Beyond 2017 increased demand is expected, however, which will be driven predominantly by a number of projects that have been deferred over the last 18 months.

Over the next five years Africa is forecast to be the leader in global subsea capex demand, surpassing Latin America to become the leading region for subsea investment. Total is a key player in the region, representing 35% of Africa’s subsea capex over the forthcoming five-year period with a number of capital-intensive ultradeepwater projects driving demand, including its Kaombo Complex offshore Angola and Nigeria’s Egina development.

Egina is expected to be the largest subsea development taking place globally over the forecast time frame, with Infield expecting 39 tree installations on the field between 2017 and 2020. The field was sanctioned in 2013 and is forecast to produce 200,000 bbl/d of oil and 4.5 MMcm/d (160 MMcf/d) of gas, with first oil expected in 2018.

While the short-term outlook for each of the above market sectors is expected to remain challenging, global offshore capex is expected to recover and grow over the coming five-year period, with an overall compound annual growth rate of 9% between 2016 and 2020. This will be driven by the reemergence of recently deferred projects and some material deepwater developments in remote areas.

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