EPC Spending Rises But Recovery ‘Fragile’


Pricing Remains Under Pressure

Spending on engineering, procurement and construction contracts is rising, but competitive pricing continues to weigh upon margins, according to research firm Westwood Global Energy.
 
The firm reports increased offshore tendering activity in 2020, but expects pricing to remain under pressure as massive disruptions in global trade hold back growth.

“Increasing orders are a welcome reprieve for a beleaguered offshore EPC supply chain still reeling from the worst downturn in its history,” said Mark Adeosun, senior analyst offshore at Westwood, noting “the recovery remains fragile” and that “there is very little room for pricing growth, meaning contractors must continue to look within themselves to improve margins and profitability of their operations.”


US$63 Billion of Contract Awards
 
For 2020, Westwood expects US$63 billion of contract awards for new offshore O&G production infrastructure, covering subsea production systems, SURF, pipelines, fixed platforms and floating production systems. This represents an increase of 49 percent compared to 2019 and the highest in seven years.

“Floating production systems (FPS) spend is projected to reach US$20 billion in 2020 after hitting U$13.5 billion last year. Latin America will dominate activity with major awards such as Mero 3, Itapu and Sergipe underpinning US$7 billion of spend,” Adeosun added.

For the offshore oil and gas sector, however, 2020 should be the second year of growth for an industry still reeling from the most severe downturn in its history.


Fewer Project Sanctions

While the firm reports there are relatively fewer project sanctions, the success of operators in driving down costs has created a “new normal,” where explorers are widening their search for EPC contractors that can deliver projects on time and on budget.
 
“Contractors will more than ever need to clearly understand future tender activity and contracting dynamics. This will enable them to prioritize internal resources and stay right sized and relevant. Overall, 2020 is expected to see a jump in offshore E&P infrastructure tenders, as E&Ps rush to lock in low costs,” Adeosun said.

Headquartered in London, Westwood Global Energy provides market research and consulting services to the energy industry worldwide.
 
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