China has emerged as the world’s top fabricator of floating production, storage and offloading vessels, with the 12 orders placed last year — for full construction or hulls only — all going to Chinese yards.
“Think of building FPSOs, think of China,” says an official with a major floater contracting company in Singapore.
However, it is not clear if China will remain content with the current business model of serving as the subcontractor for leading FPSO players such as Japan’s Modec and SBM Offshore of the Netherlands, which run their own FPSO fleet and lease the units to oil and gas companies for operation in international waters.
The industry does not expect Chinese yards to diversify into FPSO operation, although CNOOC Energy Technology & Services (CNOOC EnerTech), which is 98% owned by China National Offshore Oil Corporation, once held ambitions to become an international FPSO player.
The company is China’s largest operator and owner of FPSOs, with four units at Bohai Bay in northern China and another four in the South China Sea.
CNOOC Enertech’s attempt to woo international operators was short-lived, with a handful of tenders offered but no leasing deals completed, in part due to its limited operational and management experience.
The company has recently offered a new scheme to state-owned Nigerian Petroleum Development Company (NPDC) to replace its ageing Mystras FPSO with another floater by integrating the hull of the Changqing FPSO and the topsides of the Mingzhu FPSO.
Mystras, a converted tanker built in 1976, has been producing oil from NPDC’s Okono and Okpoho fields in shallow-water OML 119 since 2004 and is said to be in poor physical condition.
Changqing’s topside facilities are said to be too small to handle production from the OML 119 fields, while there are questions about the age of the Mingzhu hull, built in 1993.
Even with so many orders coming their way, Chinese yards are reluctant to pop the cork on the champagne just yet after the tough times they have gone through in the offshore drilling rig market.
However, the biggest problems in the rig market came when companies that placed orders walked away from them after the oil price crash, leaving yards with rigs under construction but no customers.
In the FPSO market, while yards may be pursuing a low-margin strategy in tenders their customers are players like SBM and Modec that have long-term contracts of their own with major operators like ExxonMobil in Guyana and Petrobras in Brazil.
There is also a more cautious attitude to taking on work at any cost. Last year, Belgium’s Exmar and subcontractor, China Merchant Heavy Industry, offered the lowest price to win a contract from Brazil’s Petrobras to build the Buzios-5 FPSO.
However, Chinese financial institutions found the project too challenging to support and the deal was not finalised, prompting Petrobras to call Modec back for re-negotiation to find a solution to a long-running contracting saga.
In some cases, jobs also come to Chinese yards when fabrication economics do not work for foreign yards.
Last year, Cosco Shipping Heavy Industry was subcontracted by Singapore’s Sembcorp Marine (SembMarine) to build the hull for an FPSO to be used by Greek player Energean Oil & Gas at its Karish and Tanin gas field development off Israel.
SembMarine offered the deal to Cosco after it found it uneconomical to build the floater’s hull itself.
Once completed in China the hull will travel to SembMarine’s yard in Singapore, where the topsides will be installed under a contract awarded by Energean’s main project contractor TechnipFMC.
In February, Modec awarded Cosco another sub-contract to work on the conversion of an FPSO for Italian operator Eni’s $2 billion Amoca-Mizton-Tecoalli project off Mexico.
The FPSO will be converted from the Suezmax crude carrier Felicity Modec, which was recently acquired by Modec from Belgian shipowner Euronav.
Out of 12 FPSOs being built or converted in China, five have been awarded to Cosco, with the jobs being carried out at four of its seven facilities, in Dalian, Shanghai, Qidong and Zhoushan.
Building on its success in delivering cargo ships, China is comfortable building FPSO hulls, leaving the more sophisticated job of topside construction to yards mostly in Singapore.
Most of the five Cosco FPSO newbuilds or conversions were awarded by Modec, acting as the lead contractor for operations in Brazil.
One Modec award was for the conversion of a very large crude carrier hull at Cosco’s Dalian facility into the Carioca FPSO for Petrobras’ Sepia field off Brazil. Keppel Offshore & Marine recently won the deal for the topsides.
Chinese yards are eyeing more orders to come before 2020 and they have lined up with lead floater players to participate in up to 10 projects, including floating liquefied natural gas vessel newbuild or conversion jobs.
In China, CNOOC is working on plans to deploy new FPSOs in the South China Sea for further development of the Liuhua 11-1 and Enping North fields, and a floating storage and offloading vessel for the Lufeng 13-1 and 13-2 fields.
CNOOC has already completed conceptual design for the potential construction of a Magnora (formerly Sevan Marine) style cylindrical floating drilling, production, storage and offloading vessel to re-develop the Liuhua 11-1 field and other new discoveries nearby.
The company has also finalised a plan to replace the existing Nanhai Kai Tuo FPSO at the Lufeng 13-1 and 13-2 fields in the South China Sea with a new FSO, which is to be converted from the crude carrier Fenghuangzhou.
Meanwhile, new discoveries in the Enping 15-1/18-6/10-2 oil cluster, located to the north of the producing Enping field, have led CNOOC Ltd to consider building a second FPSO for the area.
China’s Offshore Oil Engineering Corporation is building a new FPSO for use on the Liuhua 16-2 oilfield development in the South China Sea, with the hull subcontracted to Qingdao Beihai Shipbuilding Heavy Industry.
The Hai Yang Shi You 119 has been designed to handle 50,000 barrels per day of oil production.