While this year will be another challenging one within the subsea sector as a result of lower-than-expected tree orders, next year and beyond is expected to see increased demand. This will predominantly be driven by those projects that have been deferred over the last 18 months.
By region, it is Africa that will come to the fore. It is forecast to gain a 31% share of global subsea capex demand over the period 2016-2020, surpassing the Brazil-dominated Latin American market as the leading region for subsea investment.
West Africa
Within the core West African market, subsea development is expected to be driven by Total’s deepwater Kaombo Complex, with Angola forecast to see its subsea capex grow by 14% over the five-year period. Offshore Nigeria key projects include the deepwater Egina development, where 39 subsea trees are expected to be installed from 2017 onward, and Bonga Southwest, where significant capex demand is expected toward the end of the forecast.
Offshore Ghana, Tullow submitted its development plan for the Greater Jubilee area in January 2016 after reducing the planned level of capex on the development. The project will include the Mahogany and Teak fields, with the U.K.-based operator looking to gain formal development approval by mid-year. Over the medium term, with the development of Tullow’s TEN (Tweneboa-Enyenra-Ntomme) and Mahogany East fields and Eni’s Offshore Cape Three Points Block, subsea development offshore Ghana is expected to remain robust.
Latin America
Brazil remains one of the world’s most significant offshore markets, with subsea production systems a vital part of its toolkit due to the deep- and ultradeepwater nature of a large number of its discoveries. Prominent drivers of subsea demand over the next five years in the presalt areas include fields in Petrobras’ ultradeepwater BM-S-11 concession and the Buzios multiphase development.
But Mexico’s deepwater zones also undoubtedly hold significant development potential, with December 2015 seeing the country’s Energy Ministry confirm plans to launch a new licensing round covering 10 exploration blocks in deep and ultradeep water. However, in the current climate it remains to be seen whether any of these inevitably capex-intensive prospects will commence development over the medium term, with only Pemex’s ongoing Lakach project anticipated to see subsea spend this year.
Gulf of Mexico
Demand from the U.S. Gulf of Mexico (GoM) will remain integral to the global subsea market and is still an attractive area of investment for international oil companies despite the higher costs associated with activities in this area up until now, highlighted recently by Shell’s sanctioning of its giant Appomattox project in July 2015 while Brent hovered around the $57/bbl mark.
Over the 2016-2020 time frame 82% of subsea expenditure is expected to go on infrastructure located in a water depth of 1,500 m (4,921 ft) or greater, driven by projects such as Shell’s Stones Field and further brownfield developments of existing fields. Beyond Stones and Appomattox, other key developments expected to require significant subsea investment over the same period include Hadrian North, Stampede and Julia (Phase 1).
In total, the GoM holds the potential for up to 324 subsea trees to be installed before the end of the decade, with the water depth for tree installations averaging more than 1,700 m (5,578 ft).
North Sea
The European region, particularly the North Sea area, undoubtedly faces a challenging period. While the potential for subsea developments remain robust, with Infield Systems forecasting a capex demand compound annual growth rate (CAGR) of 12.4% over the 2016-2020 period, much of this is attributable toward projects that have yet to be granted a final investment decision.
Across the European region as a whole, Norway leads demand, with Statoil’s Aasta Hansteen and its satellites expected to drive capex over the medium term, while the development of Johan Sverdrup could see some of the greatest activity in terms of subsea tree installations.
The Snorre 2040 development also remains integral to Statoil’s future development plans. However, due to the complexity and capital-intensive nature of the field, the operator made the decision a year ago to extend its design phase, with the preliminary plan currently scheduled for fourth-quarter 2016.
Offshore the U.K. independent Enquest’s Kraken heavy oil field is expected to represent the largest demand for subsea trees over the forecast period, with the previous year having seen the operator carry out significant cost reduction efforts on the project. Aker Solutions was awarded a significant contract for the development back in 2013, with 20 subsea trees forecast to be installed over the five-year forecast period. Kraken currently remains on schedule for first production in first-half 2017.
BP is expected to continue to remain a significant investor in the U.K.’s subsea sector, with the majority of the operator’s activity focusing on its ongoing Quad 204 project, its multibillion-dollar redevelopment of the Schiehallion and Loyal deepwater fields.
Asia
The subsea sector in Asia is expected to expand significantly over the next five years, driven both by rising demand for oil and gas across China, India and Southeast Asia and growing LNG demand from South Korea and Japan.
Some of the most substantial subsea capex growth over the 2016-2020 period might take place offshore India. Here, the Dhirubhai R Series fields will require considerable expenditure once operator Reliance Industries decides to proceed with the ultradeepwater development.
Offshore Malaysia, strong growth also is expected with continued investment in Shell’s Gumusut-Kakap area tiebacks and further development of the SB-K deepwater block, in particular Murphy’s Senangin discovery.
Altogether, Infield expects 30 fields offshore Malaysia to require subsea spend over the next five years to 2020, with 86% of subsea capex offshore Malaysia anticipated to be directed toward developments in water depths of 1,000 m (3,281 ft) or more.
Australia
A number of well-known LNG megaprojects are currently under construction or have recently begun production in Australia, including Chevron’s Gorgon and Wheatstone LNG projects, INPEX’s Ichthys Darwin LNG scheme, ConocoPhillips’ Australia Pacific and Santos’ Gladstone LNG. Shell’s pioneering Prelude floating LNG development also is due onstream during 2017.
In terms of contract awards in the region, GE Oil & Gas currently holds the largest share of subsea tree orders for the 2016-2020 period, with contracts across nine fields, predominately within the Greater Gorgon Area and the aforementioned Ichthys project. One of the most recent subsea contract awards in late 2015 saw Woodside choose FMC to supply subsea equipment to its Greater Western Flank (Phase 2) project.
Overall globally, while the short-term outlook for subsea development is expected to remain challenging, the future outlook of the market remains positive, particularly beyond 2018. Over the period from 2016 to 2020, the forecast CAGR for capex is expected to be 17%, paradoxically driven by previously deferred projects.