Singapore's shipyard firms go head-to-head with Chinese rivals in revived O&M market

Companies have yet to win over projects worth US$145b for the rest of 2018.

The world’s global offshore & marine (O&M) market is back in action, but it’s not without challenges. After two consecutive years of declining offshore projects in 2014-2016, there were 97 projects sanctioned globally in 2017 amounting to capex of US$91b. This represented an increase of 54% YoY in capex terms.

However, so far in 2018, projects have reached Financial Investment Decision (FID) only have a combined capex of US$26b. “We blame this on keen competition, political risks and leaner cost structure among the operators,” said CGS-CIMB analyst Lim Siew Khee.

As of now, there are still US$145b of projects globally that are scheduled to reach FID in 2018, mainly in the EPC or Front End Engineering Design (FEED) stage. “From the newsflow that we have seen, we think the swinging of oil prices, noises of trade wars, and leaner operating structure amongst the operators are the key reasons for slower projects FID and contract awards so far this year,” Lim said.

Moreover, based on the projects that CGS-CIMB tracked in which the Singapore yards were bidding since 2017, there was keener competition with more Chinese names emerging in 2018.

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Lim cited how the hull for Floating Production Storage and Offloading (FPSO) Liza 2 with production capacity of c. 220,000 bbl/d of oil is done by Shanghai Waigaoqiao Shipbuilding. The topside fabrication is now being eyed by at least seven Chinese yards, according to Upstream.

Whilst the conversion of Liza 1 FPSO (production capacity of 120,000 bbl/d of oil) was done at Keppel O&M yard, Lim noted that Shanghai Waigaoqiao was picked for the hull fabrication due to its cost advantage over Singapore yards.

Meanwhile, the long-awaited Gravifloat project (around US$1b) for Chinese Poly-GCL is finally looking more hopeful, with a contract likely by end-2018. “Poly-GCL gained approval for plans to build a link to carry gas from Ethiopian fields to a floating liquefaction facility for exports to China. This paves the way for a construction agreement by the end of 2018,” Lim added.

According to Upstream, Poly-GCL and Sembcorp Marine (Sembmarine) have agreed to proceed with talks for an eventual engineering, procurement, and construction (EPC) contract.

More Chinese competition is ahead for SBM Offshore’s fabrication of a hull and topsides for a Floating Liquefied Natural Gas (FLNG) for NewAge LNG (capacity of 30,000 bbl/d). Other contracts in the pipeline include BP’s Tourtue platform, as well as Chevron’s Rosebank floater for which the Singapore and Korean yards are still bidding.

Cumulatively, Keppel O&M and Sembmarine secured $800m-900m contracts each in 2Q2018 and YTD. CGS-CIMB has a target of $3b target for 2018, but “to be more realistic,” they pared their order targets to $2b each for 2018.

Our expectations for $3b-$3.5b for 2019 remain unchanged for now, Lim noted.