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Tanker Shipping & Trade

Tanker Shipping & Trade

When it’s better to scrap than sell

Tue 09 May 2017 by Barry Luthwaite

When it’s better to scrap than sell
Some owners are now recycling rather than reselling

It is almost impossible to find an FPSO order or even the likelihood of one any time soon. The cheaper and faster option is to convert a tanker hull (over 70 per cent of the FPSO fleet comprises converted tanker hulls). But a bullish market means few are available, and a revived recycling market means scrapping is a better option than a sale.

The normal FPSO trading life is 20-25 years, with on-field charters running for a similar period on a rolling-option basis.

Following delivery from the IHI division of Japan Marine United earlier this year, BW Catcher is having finishing work carried out by Keppel Shipyard, Singapore, before commissioning to BW Offshore. The latter has a longstanding relationship with BW Offshore, having previously been the partner in 11 FPSO projects. Keppel is completing installation and integration of topside modules. On completion towards the end of 2017, the FPSO will take up a seven-year fixed term of employment on the Catcher Field located in the Central North Sea, United Kingdom. The charterer is Premier Oil and the charter contract carries rolling optional extensions over 18 years, giving a potential 25 years of work. The oil storage capacity is 650,000 barrels, with a processing capacity of 60,000 barrels per day. Like most newbuildings today, BW Catcher has a design life of 20 years without the necessity of drydocking and will be merged with the assistance of a submerged turret production system in an average water depth of 90 metres.

In February, the FPSO John Agyekum Kufor was completed by Keppel, and has since arrived off Ghana. After mooring trials at Offshore Cape Three Points in the Tano Basin, the FPSO will serve the Sankofa and Gye Nyame oil fields situated 60 kilometres off the Ghanian coat. Eighteen subsea wells will be connected to the FPSO for offloading to tankers and sale on the international market. The partners involved in the offshore project are ENI (44.4 per cent), Vitol (35.6 per cent), and Ghana National Petroleum (20 per cent). West Africa continues to grow its oil exports and is one of the brighter spots in a depressed market. The latest FPSO is of VLCC proportion, with a double hull and storage capacity of 1.7 million barrels. Daily production is 50,000 barrels.

In February COSCO Qidong delivered the Western Isles to Aberdeen-based Dana Petroleum. The cylindrical FPSO was designed with Sevan Marine technology. The owner will operate the vessel on behalf of Western Isles license partners, and the FPSO will serve two newly discovered oil fields off Western Isles, Harris and Barra.

More FPSO units were withdrawn in 2016 as charters expired or options were not taken up. There was bad news of cancellations, but some owners have little choice because of the strain on cash flow.  In April 2013 Hyundai received a contract from Chevron to design and build an FPSO to serve the Rosebank oil and gas project operated by Chevron North Sea Ltd. The project was reviewed in 2015 when the offshore slump started. This year a decision was taken to terminate the contract after an original delivery postponement. The cost of the FPSO and associated facilities was US$500 million. Following this, an LNG FPSO originally contracted by a European owner in 2009 at a cost of US$773.7 million from Samsung was also cancelled. Another serious factor affecting the stability of the market is charterer bankruptcy.

LSJOC, jointly owned by Petrovietnam and Petronas, Malaysia, was forced to terminate an FPSO contract from the end of June 2017 due to liquidation. The charter contract was for seven years with a three-year optional extension, and was valued at US$737.3 million including the option. The FPSO was serving the Lam Son field off Vietnam. Fortunately, though, state-owned PertoVietnam confirmed the vessel will be retained under a new charter arrangement, but probably at a lower charter rate.

Will more newbuildings be cancelled? There are only seven FPSOs on order, with at least one of these in doubt.

Will more newbuildings be cancelled? There are only seven FPSOs on order, with at least one of these in doubt. The bold plans of Brazil for a series of FPSOs have collapsed in the wake of the corruption scandal and economic slump in Brazil. These highly priced contracts have left the respective shipbuilders in deep trouble financially (along with related drilling rigs and drill ships). Brazil is gradually showing signs of a revival, but contracts show slow progress because of the financial problems associated with Petrobras. Three years ago Teekay Offshore formed a 50/50 joint ownership with Odebrecht Oil & Gas and Teekay Offshore, with the objective of converting Teekay’s former shuttle tanker Navion Norvegia into an FPSO. This ambition was realised in April this year when, under the new name of FPSO Pioneiro de Libra, the vessel left Jurong Shipyard bound for Brazil. The vessel will be the first to produce oil from the massive Libra pre-salt field in the Santos basin. This FPSO can operate in water depths up to 2,400m. It has a production capacity of 50,000 barrels of oil per day, and a compression capacity of 4 million3 of gas.

Where newbuildings will inevitably continue to experience a drought, there is likely to be a revival in conversion interest and business placed. Tanker hulls are generally purchased well in advance and occupy long periods of idleness at cheap maintenance cost until a charter is confirmed. The major industry exponents will be SBM Offshore (Netherlands), Modec Inc (Japan), Hyundai and Samsung (South Korea), Yinson Holdings (Malaysia), BW Offshore (Norway), Aker Solutions (Norway), Teekay Corporation (Bermuda), and Bluewater Energy Services (Netherlands).  

On an optimistic note the world’s largest floating gas production and storage vessel – Prelude – will commission early next year from Samsung. Owned by Shell Development Pty, the vessel will serve Shell’s Prelude project off Northwestern Australia. A total of 3.6 million tonnes of LNG will be produced annually, supported by 1.3 million tonnes of condensate and 400,000 tonnes of LPG in the same period.        

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