We can rely on little in this uncertain world. But one thing is certain: medium- and long-term energy prices are set to climb steadily. Rising living standards and a glowing global population will place new strains on energy reserves which are likely to remain largely based on hydrocarbons for at least another generation.
However, as energy experts point out, almost all of the »easy« oil and gas has been developed and new reserves[ds_preview] are both harder and more expensive to find and develop. With a few exceptions, onshore oil is known about and spoken for. Tomorrow’s discoveries will lie in deep, hostile waters offshore and in the remote inhospitable regions of the northern latitudes.
Despite the global downturn which, in terms of energy economics, is merely a blip, future supply is right at the top of energy company agendas and is the catalyst for a wide range of technical initiatives which will drive offshore exploration tomorrow. Oil demand has eased in recent months and some of the pressure on supply has come off, but drilling activity continues at a cracking pace in a many regions including offshore India, large parts of South East Asia, off the coast of China, the Caspian Sea and offshore Brazil.
In fact, this activity has driven a contracting spree resulting in the largest-ever orderbook for anchor handling tug supply boats (AHTS), platform support vessels and other offshore service craft. In the short run, this has left the market awash with tonnage, and record spot rates seen in 2008 have plunged to levels well below breakeven (see below). Unlike other shipping markets, however, this situation is unlikely to last for long. Such is the scale of the quest for new hydrocarbon reserves that many experts believe these new vessels will be absorbed into the market fairly soon.
Brazil’s Tupi Field in the ultra-deep water of the Santos Basin is the largest hydrocarbon discovery of recent years. Its discovery and development is likely to propel Brazil from number 16 in the world production table in 2008 to somewhere in the top ten by 2015 at the latest. In non-Opec terms, Brazil is currently seventh, just behind Norway, but will soon rank in the top five.
And in terms of production growth, Russia is still number one but Brazil, at number two, is close behind. Energy experts predict that it may take the lead soon – production has climbed from about 750,000 b/d in 1998 to well over 2 m b/d today. And this figure is set to rise significantly as the Tupi Field comes on stream. Not to say that that will be a straightforward process by any means. The oil and gas deposits lie in deep water of more than 1,500 metres, presenting a major challenge in both exploration and development. Moreover they were found in October 2006 by the BG Group in a geological formation known as the »pre-salt layer«. The oil and gas are held in rocks below a thick layer of salt which in places is more than three kilometres thick. The challenges of finding new sources of oil and gas in such locations are taxing in the extreme. But they are also driving those at the forefront of offshore technology developments.
According to Petrobras, the Brazilian state oil company, oil reserves in Tupi could exceed 8bn barrels and there are substantial reserves of natural gas too. The field will be developed using floating technology – a fleet of FPSOs will be required, together with a flotilla of support craft and, in due course, FPSOs designed to work on gas production.
However, the urgency to find more oil is emphasised by the fact that although Tupi is one of the largest discoveries in recent times, it would last the world only around 100 days at present consumption rates. In other words, we need a lot more Tupi-like discoveries: new sources are absolutely critical in the global energy equation. And the implications for oil prices in the medium term are clear – they can only go one way. The Norwegians have been at the forefront of offshore oil technology and the fact that production from the North Sea is declining does not appear to dent their enthusiasm. In fact, if anything, quite the reverse, In the Sunmøre region of the country’s west coast, there is a thriving cluster of firms all focusing on the new technology that will be required for development of small and inaccessible reserves which were not viable when oil cost $ 30 a barrel, but look quite interesting at $ 80. They are also developing complex light well intervention vessels to work over existing wells where remaining reserves were given up as not viable.
This specialist cluster of leading offshore firms comprises designers and builders – including companies like Rolls Royce Marine, STX Offshore Norway (previously a division of the Aker Group), Kleven and Ulstein. It takes in some of the world’s leading offshore vessel operators – Bourbon Offshore Norway, Farstad, Havila, Island Offshore, Olympic and REM Offshore ASA, for example. And then there are a host of equipment manufacturers and suppliers working on the latest in design innovation in such fields as propulsion, dynamic positioning, heave compensation, hull resistance, emissions control, automated cargo and plant handling, and accommodation design and outfit.
Many of the companies are members of the Norwegian Centre of Excellence Maritime (NCE Maritime) which is based in Aalesund. It is, according to general manager Per Erik Dalen, an incubator for new business development, both nationally and internationally, and today comprises 14 shipyards, 15 design companies, 18 owner groups and 159 equipment manufacturers. The Møre cluster will turn over about Nkr 58 bn this year, up from Nkr 51.5 bn in 2008. The target is to break through Nkr 100 bn by 2016.
Dalen points to some of the areas in which new initiatives are under way. New software for heave compensation is being developed, for example, which is critical to precision operations in harsh conditions offshore. Composite materials are being tried and tested, and the new Stadt towing tank, which opened on September 1st, will be used to test new hull configurations and vessel sea-keeping characteristics. An important aspect of NCE Maritime’s work is the drive to bring new blood into the marine and offshore sectors. A new Maritime Competency Centre attached to Aalesund University is to be built next year with backing from local companies, including Rolls Royce Marine. Batchelor and Masters degrees are being offered and 15 students have enrolled so far.
»We are recruiting young people. We are going in to schools. And we are attending shows and exhibitions,« says Dalen, emphasising the drive to attract young people into the sector.
But hasn’t the recent downturn dampened the collective enthusiasm? Far from it. With a heritage founded on fishing, some of the most formidable waters on the planet, the Norwegians of this region are endlessly pragmatic and prepared to face anything that comes at them. Sure, the world economy has had a bad bump and energy demand has lost some momentum.
But this provides a useful space to focus on new initiatives and invest in design innovation that will ensure these Norwegian firms are as well-prepared as possible for the oil and gas exploration and production demands of tomorrow.
Island Offshore at the North Sea’s frontier
Håvard Ulstein, managing director of Norwegian offshore operator Island Offshore, is relieved not to have a large newbuilding programme stretching out ahead of him. Just over a year ago, he predicted »a bloodbath« in the anchor-handling sector, particularly in the North Sea. And his worst fears have proved correct.
The spot market has collapsed from a peak exceeding £ 200,000 a day in mid-2008, to less than £ 5,000 in late October. Owners whose vessels are working spot or short-term are losing money hand over fist and only the lucky ones have other tonnage locked away on profitable medium- and long-term contracts. As these expire, however, a growing volume of tonnage will become available and, unless things change soon, there will be little incentive for charterers to book tonnage on term deals. The market will get worse before it gets better, the Island Offshore boss believes. And he blames the greed of supply boat owners, shipyards and brokers for a market already awash with tonnage but still facing the prospect of absorbing hundreds more boats in the months ahead.
Island Offshore is a relatively young company, establishing only in 2004, but since then it has built up an impressive offshore fleet which today includes some of the most technologically advanced units in operation anywhere. As well as some eight platform supply vessels, two anchor handlers equipped with remotely operated vehicle (ROV) inspection, repair and maintenance capability, the company owns three subsea support vessels for cargo handling and diving support. It also has four light well intervention vessels, which despite the downturn, are in demand in the North Sea for well work-overs.
The »Island Front«, for example, has worked full-time for StatoilHydro since her delivery in April 2006; the »Island Wellserver« is also working for the Norwegian charterer, on a 150-day per year contract until 2015; and the »Island Constructor« is currently working for BP on Schiehallion, west of Shetland. Meanwhile the company Island Patriot is being converted to perform well stimulation work, with a four-year contract to BP Norway beginning in the first quarter of 2010.
Ulstein says it was a bold move to invest in well intervention vessels – the company also has a heavy well intervention rig under construction – but one that is paying off.
»Increased oil recovery is a key focus area,« the Island Offshore head told journalists recently in Aalesund, on Norway’s west coast. »Our intervention boats represent around half of our turnover,« he said, »and we intend to grow internationally.«
Light well intervention vessels work over existing offshore well where the remaining oil reserves were not viable at then-prevailing prices. The well were therefore »shut in«. Provided there are no major complications, the wells can be opened again by these intervention vessels and the oil recovered at today’s prices can yield instant and spectacular returns. Extra recovery rates can range from 40 % to more than 60 %. Not all such operations are successful, however, and if there are complications, a rig may need to be deployed at about three times the cost.
The light well intervention vessels, with a price tag of around Nkr 900 to Nkr 1 bn ($ 160–180 m), do not come cheap, but in the Norwegian sector of the North Sea, there are some 450 wells which will require intervention in the years ahead.
»Light well intervention is the cheapest way of maintaining production,« Ulstein explains, »I am confident about the future because most of our boats are on long-term contract.«
