Ken Montgomery, Niksam, Singapore, explains the importance of thorough candidate analysis when selecting new vessels for FPSO conversion.

At 33% of global fuel consumption, oil is the world’s leading fuel¹ but is losing ground against gas, coal and renewables, and this trend is set to continue.

The abundance of ‘low cost of recovery’ conventional and unconventional proven and probable gas reserves, large ‘low cost of recovery’ of proven and probable coal reserves and renewable energy resources are significant.

This needs to be considered in context however as although oil is losing ground in percentiles, consumption is still rising and will continue to do so as the global economy improves and global populations increase and require more energy.

Gas to liquid processing² is increasing; the process requires a large capital investment in plant, and transportation, but it produces fuels with virtually no sulphur or aromatics, and with the ever declining fall in light sweet crude resources, refiners’ margins are being hit due to more sophisticated plant being required to process sour crudes within the emission control parameters set and being set.

Gas to liquid has an almost zero impact on emissions and with gas pricing being low and likely to go even lower due to new finds and new technologies in is inevitable the gas market will gain ground in global fuel consumption.

What does this mean for the FPSO market?

The World Floating Production Market Report³ is bullish on FPSO demand driven by technological advancement of subsea production and deepwater finds and considers a total of 134 units will be required between 2012 and 2016

Also to be considered is the impact new technology is having on reservoir recovery efficiencies leading to marginal and stranded assets becoming profitable. Over the last 18 months, an increase in the demand for FPSOs for these wells has been witnessed as the economics often make sense. The processing plants are typically two stage separation, water reinjection, gas reinjection or flaring if the gas quantity is small or the economics of building a subsea gas pipeline do not add up. The cost of converted FPSOs leaving the yard are around US$ 350 million which at 5000 bpd and oil prices in the range of US$ 100 - 115 per bbl, notwithstanding risks such as political, legal, royalties and taxes and obsolescence bargaining make these investment attractive. Typically smaller oil companies or investors like the marginal market whereas the IOCs prefer mega-projects.

So it is possible the forecast for 134 new units is conservative in light of a forecast increase in oil prices, and new and improved technology.

Selection of candidate vessels for an FPSO conversion is an important consideration if the projected expected monetary values (EMVs) are to be realised over the project life. Typically the initial approach to Niksam’s FPSO division for the provision of expertise is from the financiers of a project who have been approached by a firm wanting to convert an FPSO and put it onto a field in combination with the firm.

More often than not, the firm has sound process, petroleum and reservoir experience, but limited marine experience, which tends to trip up the economic model.

By way of example ‘Firm X’ approached Niksam to assist with the selection of a suitable vessel for conversion and project management of the conversion. Firm X had whittled the selection down to three candidate vessels (A, B, and C) put forward by a broker; all three were Aframax, A and B were sisters from the same yard and all three were around 15 years old. All three were classed with different societies: DNV, RINA and BK.

The off take schedule was to be monthly, production was approximately 8000 bpd; net production/month approximately 250 000 bbls. Aframax tankers can typically hold ~750 000 bbls; However, the investors were aware of this, and the owners considered it probable that an additional two wells would come on stream (this information had come from a source considered to be reliable – the article will return to this point later).

References

1. BP Statistical Review World Energy June 2012
2. Fischer Tropsch
3. Douglas-Westwood
4. http://en.wikipedia.org/wiki/Sulfuric_acid

Part 2 of this article can be reached here.

Adapted by David Bizley

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/23092013/finding_the_right_candidate_part_1/