Deep water liquid oil reserves currently account for an estimated six percent of global oil production. That share is expected to rise to approximately 11 percent of conventional oil output — nine million barrels per day — by 2035, according to the International Energy Agency.
The decline in world oil prices, however, has put a damper on moving ahead with some existing projects, as well as funding exploration and development of new deep water projects. In March, a U.S. government auction for Gulf of Mexico drilling rights, for example, had only 42 bidders — fewer than half the 92 bidders a similar auction attracted a year earlier.
The good news is that oil companies plan deep water projects for the long term. Analysts expect demand for oil to continue to rise and for prices to eventually reflect that demand. Jim Stanczak, Vice President, Oil & Gas Market and Business Development, SPX FLOW Power and Energy, breaks down the current situation and explains what's driving the trends.
Why are oil producers expected to continue focusing on their deep see water exploration and production?
Offshore production represents a growing, alternative hydrocarbon energy supply source for the future. This will especially be the case as some of the easier-to-find and easier-to-produce formations and projects are played out.
We have seen huge technology advancements and strides in all deep water categories – geophysical, exploration, drilling, production, pipeline and deep water tethered and floating production facilities. These advancements, driven by the positive economics of drilling offshore and being able to produce large volumes of oil and gas from deep water formations, have made these new deep water projects viable; where, previously they would have otherwise been unknown or deemed unviable because of technology constraints.
Without these new sub-sea technologies and the ability to connect all of these wells to a common floating, or fixed production storage and offloading facility, we wouldn't have experienced this huge number of recent projects.
These deep water projects are tapping into mega-fields. They're similar in size to the largest fields in any of the Middle Eastern countries. The new technologies have really allowed us to economically find, drill and undertake production with these large floating or fixed drilling and production facilities. They can produce hundreds of thousands of barrels a day.
Where is this production primarily taking place?
There are nearly 200 floating production storage and offloading (FPSO) units working around the globe today. Offshore Brazil has the largest number of deep water floating production units, followed closely by western Africa offshore, The North Sea, Asia Pacific (mostly China) offshore, offshore Australia and then a smattering elsewhere. Lately, we’ve even seen some renewed activity coming from offshore Argentina in heavy oil formations.
Unfortunately, there has been a recent slowdown in current and new FPSO and deep water production projects, due, in most part, to the significant drop in oil prices over the past year. It's actually a bit surprising to see current projects being delayed, since most of these projects tend to be driven by long-term economics, and significant investments in drilling and equipment have already been made.
Deep water projects are typically planned with a large enough “hedge” built into the oil price to keep them viable through virtually all market upheavals. So, the fact that so many projects are being delayed really underscores the severity and impact of the lower oil price on the industry. Consequently, it appears that 2015 will be one of slower years for FPSO build-outs. We expect this temporary slowdown to spur increased deep water activity over the next few years as oil prices stabilize.
Is regional demand driving the location of these floating production, storage and liquefied natural gas (LNG) facilities?
In some cases, like in Brazil, the answer is yes, it’s driven by local/regional demand. In other locations, these projects are competing against other sources of supply, so they need to be competitive on a regional or global basis. If you look at Western Australia, for example, they have huge natural gas reservoirs on the northwestern shelf where they've been developing and building floating liquefied natural gas facilities to supply/supplement their onshore plants. Their proximity to the Asian market certainly helps their economics due to the low shipping costs. Similarly, there are two floating liquefied natural gas (FLNG) projects now being undertaken in Malaysia to supply domestic as well as regional demand for natural gas. These facilities will actually produce and convert natural gas into LNG. The viability of each deep water project is calculated by producers in a similar manner - how much hydrocarbon is available, how much will it cost to drill and develop the field and the production/process facilities, where is the nearest market and what price can they receive for the product.
SPX FLOW Power and Energy is providing up to $60 million in equipment on some of these larger floating oil production vessels. Can you provide some specifics about the kind of equipment that SPX is providing?
In the well bore, SPX FLOW provides a unique artificial lift solution with its hydraulic submersible pump (HSP) technology. It has been used successfully in the North Sea to expand the lifetime of wells/fields and has worked without failure or interruption for over ten years straight. At the wellhead, we offer our Bran+Luebbe branded chemical injection pumps and skids to inject various liquids into the production fluid to prevent hydrate formation. The large volume and high pressure capacity of our pumps allow the entire subsea system to be protected when the platform requires a maintenance shutdown. Bran+Luebbe pumps have the advantage of a smaller footprint and they're lighter in weight than many competing products. Reduced size and weight of process equipment is very attractive to customers, since these items also influence the size and cost of the vessel.
In addition to artificial lift and dosing pumps and skids, we also provide a wide variety of other pumping solutions on these large vessels, such as: sea water lift; fire protection systems, water injection and hydrocarbon processing. In fact, pumps make up the majority of the $60 million total.
Often, we’ll combine a number of different SPX FLOW brands/products into a process solution. For example, for water injection, we’ll use our sea water lift pumps, filters, valves and chemical injection pumps/skids along with our process and water injection pumps to obtain water, filter it, process it to make it inert, and then pump it back into the formation to replenish the volume and recharge the pressure.
We supply a lot of the pumps, heat exchangers, valves and filters on the vessel's systems that actually process the gas and oil to remove and/or separate contaminants.
We also support the ancillary systems on the facility with our products. Our Balcke-Dürr branded heat recovery systems are used on the gas turbines that generate the power for these floating offshore vessels. These huge gas turbines generate a lot of heat, and the Balcke-Dürr system recovers that heat and coverts it as necessary to support other applications around the facility. Similarly, SPX dehydration provides air dryers to keep the compressed air used around the facility at the proper dew point.
In summary, SPX FLOW is definitely on the leading edge when it comes to supplying process equipment and solutions for floating and fixed deep water oil production facilities.