Rystad: Coronavirus could delay FPSOs under construction in Asia up to one year

The outbreak of the coronavirus is set to cause extensive staffing and supply shortages as well as delays on floating production, storage and offloading (FPSO) vessels under construction in China, South Korea, and Singapore, according to energy intelligence firm Rystad Energy.

Rystad said on Friday that 22 out of a global total of 28 FPSOs under construction were being built at shipyards in China, South Korea, and Singapore.

According to the company, the coronavirus outbreak could delay project deliveries by at least three to six months.

If the epidemic escalates, the delays could increase to nine or even 12 months, especially taking into account the restricted time windows for heavy transport, installation and hook-up.

The average development time for an FPSO is 36 months, meaning that companies could face a 30 percent delay.

Rystad Energy partner and head of oilfield service research Audun Martinsen said: “Although operators and contractors are looking into ways to make up for some of the time that will be lost by fast-tracking other stages of development, we anticipate first oil or gas for these projects will face clear delays.”

At present, 28 FPSOs are under development globally, 15 of which are being built in China. Seven are under construction in COVID-19 hotspot South Korea as well as in Singapore, while six additional vessels are being constructed elsewhere.

Rystad added that many Chinese workers received a holiday extension in early February after the Chinese New Year, aimed at limiting the spread of the coronavirus disease.

However, even as workers return to the yards, Rystad Energy expects projects may still have to contend with 30 percent to 50 percent fewer work hours.

Construction progress may also be slowed by supply delays, as the delivery of bulk materials, modules and equipment are hampered by transportation restrictions both within and outside of mainland China. The plant utilization rate in China’s equipment manufacturing sector has now fallen to less than 10 percent.

Rystad also pointed out that project management would face severe issues as travel bans restrict contractors, engineering firms, certification companies, and E&P officials from accessing shipyards.

This became prominent after the coronavirus spread to the Lombardy region of Italy, forcing major contractor Saipem to ask thousands of workers to stay home until further notice.

It is not yet clear when the effects of the epidemic will ease, but the situation will worsen in March and the impact of the virus is not limited to Chinese fabrication yards as it affects the entire global service industry.

As the virus has caused reduced industrial activity and travel restrictions in China and beyond, much of this year’s global expected oil-demand growth will be lost. Earlier this month, Rystad heavily revised its annual global oil demand growth forecast down by 25 percent to 820,000 barrels per day (bpd) in 2020 due to the effects of the coronavirus.

Oil prices have already dipped below the $50 per barrel threshold and could fall further if OPEC does not implement additional supply cuts. Lower oil prices will result in oil and gas companies scaling down their flexible investment budgets, especially shale operators in the US as well as some offshore exploration and production (E&P) players.

“Our current assessment forecasts that COVID-19 could result in global E&P investments falling by around $30 billion in 2020 – a significant hit to the industry,” Martinsen stated, adding that some of these investments are likely to come back in 2021.

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