FPSO demand will double this decade

(SINGAPORE) Global demand for floating oil production and storage vessels is expected to more than double this decade as surging crude prices allow exploration to move deeper offshore, senior industry executives said yesterday.

With oil prices at 21/2 year highs above US$125, economic conditions are ripe for oil companies to use these vessels, at a cost of more than US$1 billion each, to dig deeper and further off the coasts of Brazil, Australia, West Africa and the North Sea.

At least 127 of the nearly 200 planned offshore oil projects in the next eight years will likely employ floating production storage ships to exploit crude and natural gas reserves, up sharply from the 92 currently under lease, said Stig Hoffmeyer, chief executive of Maersk FPSO.

'I have never been in an industry before where the future outlook is so bright,' Mr Hoffmeyer said at a floating production storage and offloading (FPSO) conference in Singapore.

'Taking oil and gas out of the ground onshore and in shallow waters is coming to an end, so we will be moving more and more to deeper water. I am confident that the industry will grow significantly in the coming 10, 20 and 30 years.'

That was good news for FPSO leader Dutch-listed SBM Offshore, along with rivals Modec in Japan and Norway's BW Offshore that together dominate the industry.

The three represent 44 per cent of the FPSO market and were expected to increase their share due to the recent demise of smaller rivals, high entry barriers for outsiders, and tight financing.

'In the wake of the financial crisis and significant drop in oil prices, many of the smaller and speculative players left the market,' Mr Hoffmeyer said.

'Today, the three largest contractors sit on almost half of the lease market, creating oligopolistic characteristics. And there is strong rationale for further consolidation.'

South America, West Africa and Asia-Pacific were expected to see the biggest demand for FPSOs since they do not have the seabed pipelines to transport oil and gas to shore, said Robin Allan, Asia director for Britain's Premier Oil.

A third, or more than 60 FPSOs, were currently being used or earmarked for projects in Asia-Pacific, he added.

Despite having an extensive seabed pipeline network, the United States last month gave final approval for Petrobras to use the first ever deepwater floating production storage facility in the Gulf of Mexico.

Analysts, however, do not see a boom in demand for the long-term in North America. -- Reuters