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Global Subsea Market Outlook

from an Asia Pacific Perspective


4th Asian Subsea Conference and Exhibition

Prepared by
Kian Zi Chew
Douglas-Westwood Singapore

www.dw-1.com

Douglas-Westwood Our Business


offshore

power

Established 1990
Aberdeen, Canterbury, London, Singapore
& Houston

Activity & Service Lines

onshore

Business strategy & consulting


Commercial due-diligence
Market research & analysis

LNG

Published market studies

Large, Diversified Client Base

downstream

1000 projects, 600 clients, 80 countries


Leading global corporates
Energy majors and their suppliers
Investment banks & PE firms
Government agencies

LNG
renewables

Transaction Support:

Mergers & Acquisitions


(M&A and LBOs)

Financing Facilities
(inc. MBOs)

Initial Public Offerings


(IPOs)

Douglas-Westwood Research

Macro-Economic Environment
Offshore Market Outlook
Subsea Market Review
Conclusions

Global Energy Demand Outlook


Primary energy demand is the prinicple indicator for all oil & gas related expenditure.

17.6btoe

Global demand is expected to grow by 41% between 2012 & 2035.


Population growth projected at 24% for the same period.
Energy intensity per capita is growing...
12.5btoe

8.1btoe

1990

1995

2000

2005

2010

2015

2020

Global Primary Energy Demand BP Energy Outlook 2035

2025

2030

2035

Global Energy Demand Outlook Asian Import Dependence

47%

Asia

China

40%

22%

India

Japan

S. Korea

5%

4%

2%

% of global energy demand (2013)

22%

Asian % Share of Global Demand

0%
-10%
-20%
-30%
-40%
-50%
-60%
-70%
-80%
-90%
-100%

Gas Balance

Oil Balance

Asian Import Dependency

Asian population and economic the major driver behind projected global energy demand surge.
Asia will account for 47% of global demand by 2035 compared to 22% in 1990.
However, Asia is major importer of oil & gas, in particular oil which has a regional import/export
balance of -71%. Chinas oil imbalance is currently estimated at -58%.
Major global economies such as Japan and S.Korea are almost exclusively reliant on external oil
& gas.

Global Energy Demand Outlook Growing Importance of Gas

6,000
mtoe

100%
90%
80%

Oil 2012-2035 Increase 20%

5,000

42%
51%

70%

4,000

60%

3,000

50%
40%

2,000

30%
20%
10%

Power

Transport

Industry

1,000

Gas 2012-2035 Increase 55%

0%

1990

2035

Global Energy Demand by Sector

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Global Energy Demand by Fuel

The combination of increased energy efficiency throughout OECD states and growing
economies in Asia is driving demand for power generation at the expense of transportation.
Natural gas is becoming an increasingly popular fuel for power generation offering a relatively
safe (compared to nuclear); cheap (compared to oil); and clean (compared to coal) energy
source.
Demand for natural gas to increase by 55% over the next 20 years...

Brent $/bbl

Oil Supply Outlook Prices & Sanctioning


$160

DW expects oil prices to straddle the $90-$100/bbl mark for the next five
years.
Duvernay Shale

$140

The majority of major projects will be viable at these levels.

$120

Only arctic and some shale


projects will be threatened.

Prirazlom

$100
Block 18 West

$80

Approval threshold

Egina

Lucapa
Papa Terra

Based on anticipated oil price levels

Cepu

Mars B

$60
ent Spot Price FOB
(Dollars per Barrel)
ase
ase
$40

Europe Brent Spot Price FOB (Dollars per Barrel)


EIA High Case
EIA Low Case

$20

Breakeven Price ($/bbl)

Block 18 West

Egina
Lucapa

Papa Terra
$0
Cepu
2000 2001 2002 2003
2004 2005 2006 2007 2008
Mars B 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Oil Price Outlook and Impact on Offshore Project Sanctioning

Gas Supply Outlook Prices & Sanctioning


$/mmbtu

18
16

US
Japan (LNG)
UK
Europe

Unlike oil the gas market has a more regional pricing


structure due to historical geographical supply
limitations.
Up to 2008 regional prices typically trended together
however the flooding of US shale gas between 2009-11
and rapid demand growth in North Asia post Fukoshima
have created massive price disparity globally.

14

12
10

With the US poised to become a major exporter of


natural gas via LNG over the next ten years most
analysts expect a gradual convergence of regional
pricing.

8
6
4

Significant short-mid term arbitrage opportunities for


North American gas producers.

2
0
2000 2002 2004 2006 2008 2010 2012
Regional Gas Prices

Influx of US exports is creating uncertainty in project


sanctioning for gas projects in exporting nations such
as Australia (see Browse).

250

$120

$/bbl

Upstream Cost Index

Industry Challenges Cost Inflation

$100

200

$80

150
$60
100
$40

50

Upstream Capital Costs


Oil Price

$20
$0

2000 2002 2004 2006 2008 2010 2012


Upstream Capital Cost Index vs Oil Price BP, CERA

Upstream capital costs have increased by over 200% since 2000.


Whilst costs rose rapidly in line with oil prices during 2005-08 they remained high during the oil
price crash of 2009-10.
High industry costs are an increasing concern for oil & gas companies and the profitability of their
new projects.

Macro-Economic Environment

Offshore Market Outlook


Subsea Market Review
Conclusions

Global Supply Outlook The Role of Offshore


Offshore and natural gas becoming increasing important to global hydrocarbon supply over
the next ten years.
200mn boepd

70mn boepd

70mn boepd

60mn

60mn

50mn

50mn

40mn

40mn

30mn

30mn

20mn boepd

20mn boepd

180mn

160mn

140mn

120mn

100mn boepd

Offshore

Deep

Offshore Gas

Onshore

Shallow

Offshore Oil

Global Oil & Gas Production

Global Offshore Production

Global Offshore Production

Offshore E&P Spend


$211.9 billion spent in 2011 unprecendented levels of expenditure. An additional $1.4
trillion to be spent over the next five years at a CAGR of 7.7%.
76% of anticipated expenditure to be associated with shallow water over 2014-18.

$350

$306.8

$300

$211.9

$250
$200
$150
$100
$50
$0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Offshore E&P Expenditure Outlook ($billions)

2015

2016

2017

2018

Offshore E&P Spend by Segment

$1.4 trillion

Offshore E&P Expenditure 2014-18 by Segment

Offshore E&P Spend Regional Breakout

Western
Europe
19%

Others
2%

Africa
14%

South - East
Asia
17%

$1.4 trillion
North America
20%

Rest of Asia
7%

Latin America
13%

Australasia
3%
Middle East
5%

Offshore E&P Expenditure 2014-18 by Region

$billions

Asia-Pacific
$100
$80

APAC is a large, mature and


predominantely shallow water area
controlled by NOCs.

Shallow
Deep

$60

58% of demand accounted for by three


largest countries (India, China & Malaysia).

$40

The region will account for 30% of fixed


platform expenditure more than any
other.

$20
$0

New Zealand
Sri Lanka
Russian
1%
1%
Federation
2%
Brunei
Darussalam
2%
Australia
6%

APAC Offshore E&P Spend

60
50
40
30
20
10
0

East Timor
1%
Myanmar
1%
India
25%

Thailand
7%
Viet nam
10%
China
19%

APAC Drilling Rig Demand by Operator

Others

Indonesia
12%
Malaysia
13%

APAC Drilling Rig Demand by Country

$billions

Middle-East
$20

$15

The Middle East is a mature, shallow water


market.

Shallow
Deep

Activity is concentrated in the Persian Gulf,


particulary throughout Saudi Arabia and
the UAE.

$10

Despite limited growth in E&P expenditure


strong drilling growth will drive demand for
OSVs.

$5
$0

Middle East Offshore E&P Spend


Egypt
7%

50

Qatar
11%

40
30
20

Saudi-Kuwait
Neutral Zone
2%

Oman
1%

Saudi Arabia
45%

Iran
14%

Middle East Offshore Drilling by Contractor

10

Others

0
UAE
20%

Middle East Drilling Rig Demand by Country

$billions

Latin America
$50
$40

Shallow
Deep

$30

The Latin American E&P landscape is


dominated by NOCs such as Petrobras in
Brazil and Pemex in Mexico.
Deepwater rig requirements are expected to
grow at a CAGR of 14.8% over the next five
years to support ultra-deep pre-salt
developments offshore Brazil.

$20
$10
$0

Trin. & Tobago


2%

Latin American Offshore E&P Spend


Venezuela
3%

80
70
60
50
40
30
20
10
0

Mexico
36%

Ecuador
1%

Brazil
58%

Latin America Drilling Rig Demand by Operator

Latin America Drilling Rig Demand by Country

$billions

North America
$70
$60

The US Gulf of Mexico is the worlds largest


shallow water basin by installed infrastructure.

Shallow
Deep

Over the next five years both shallow and


deepwater drilling are expected to pick up
with Jack-ups experiencing a CAGR of 3.2%.

$50

$40
$30

The deepwater industry is dominated by


major IOCs whereas the shallow water
market is highly fragmented.

$20

$10
$0

Canada
3%

North America Offshore E&P Spend

North America Drilling Rig Demand by Operator

US
97%

Others

Cardon

Tana

ARENA

30
25
20
15
10
5
0

North America Drilling Rig Demand by Country

$billions

North Sea
$60
$50

Given the maturity of the basin, shallow water


drilling is expected to decline at a compound
rate of 4.6%.

Shallow
Deep

$40

Increased exploration in deeper areas will


drive floating rig demand at a CAGR of 2.8%

$30
$20

These deepwater campaigns will be


dominated by larger oil companies such as
Statoil, BP and Shell.

$10
$0

North Sea Offshore E&P Spend


Netherlands
11%

30
25
20
15
10
5
0

Denmark
6%

Norway
45%

North Sea Drilling Rig Demand by Operator

Others

Talisman

UK
38%

North Sea Drilling Rig Demand by Country

Macro-Economic Environment
Offshore Market Outlook

Subsea Market Review


Conclusions

Global Subsea Expenditure Outlook

28.5bn

27.1bn

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2013 usher in a stepchange in subsea expenditure - $213 bn of investment over the next five years
compared to $122 bn over the previous period.

This change is largely driven by the increasing reliance on deepwater developments.


Subsea hardware is expected to account for 55% while vessel operations account for the remaining 45%
Offshore Drilling Trends

Fixed Platform Installations

Floating Platform Installations

1
Deepwater Drilling (Indexed to 2007)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2018

2017

2016

2015

2014

2017

2013

2015

2012

2013

2011

2011

2010

2009

2009

2007

2008

Shallow Water Drilling (Indexed to 2007)

Strong growth in subsea hardware spend

Picture: FMC

Worldwide expenditure to total $117bn over the 2014-2018 period.


(83% growth on the previous five years)

49% Subsea production hardware


36% SURF (subsea umbilicals, risers & flowlines)
15% Trunk pipelines

World Subsea Hardware 2014-2018

UK &
Norway
$24bn

N America
$17bn

Asia
$16bn
Africa
$21bn

S America
$19bn

40% Subsea production hardware


32% SURF (subsea umbilicals,
risers & flowlines)

26% Trunk pipelines

50
45
40
35
30
25
20
15
10
5
0

PipeLay
ReelLay

FlexLay
DSV
MSV

1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Deliveries

Subsea vessel deliveries

Subsea Vessel Deliveries

The build cycle is undoubtedly cooling off now


Strong demand demand for larger, technically advanced vessels
Potential orderbook of $5-6 billion over the next few years

Subsea vessel operations market outlook

Global market to see a CAGR of 10% to


exceed $22 billion by 2018.

Largest growth from vessels supporting


deepwater developments.

$billions

Western
Europe
19%

others
6%

Africa
15%

Asia
16%

North
America
21%

Australasia
4%

Latin
America
19%

L. America to grow from 27% & Africa to


38% of demand between now & 2018.
25

$22.4

20

$13.8

15
10
5
0

2008

2009

2010

2011

2012

2013

2014

Subsea Vessel Demand Outlook

2015

2016

2017

2018

Regional Subsea Profiles Asia


Asian subsea expenditure to total $32bn over the next five
years 15% of global demand.
Investment is trending away from conventional shallow water
infrastructure and towards subsea and deep waters.
The future of the subsea industry is top-heavy with 65% of
forecast demand accounted for by the top five E&P cos.

Subsea Hardware accounts for 52%, vessel operations for


48%
Major investment in manufacturing capacity already occuring
in the Asian region to ready for growing deepwater demand.

Subsea Expenditure

Subsea Tree Installation

Vessel Demand Analysis


4%

>2000

16%

1500-2000

5.0bn

800-1499

16%

64%

500-799

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

250-499
<250
2013

2014

2015

2016

2017

Field Development

Trunklines

IRM

Subsea Intervention

Macro-Economic Environment
Offshore Market Outlook
Subsea Market Review

Conclusions

Conclusions

Macro-economic Environment:

1. Long term fundamentals of the oil & gas industry remain highly robust.
2. Key industry risks include rising costs and manpower.
Offshore Market

1. $1.4 trillion of anticipated spend on the offshore E&P industry over the next five years.
2. Continued trends towards deepwater developments, while shallow water continue to
account for the majority of expenditure.

Subsea Market:
1. Long-term growth potential, particularly in Africa, Asia-Pacific and Brazil.
2. At a price, and as a result our study shows the sector has become a very sizable
opportunity for the oilfield service and equipment community.

Questions?

Kianzi.chew@douglaswestwood.com