Sailing Towards Sustainability: Reducing Carbon Emissions in the FPSO Industry

monica.cai@crm.szc-group.com

Introduction
In the dynamic world of offshore oil and gas development, Floating Production Storage and Offloading (FPSO) vessels have emerged as a preferred solution. As global demand for FPSOs continues to rise, so do concerns regarding their carbon emissions. This blog explores essential trends in the FPSO industry, with a focus on emission reduction strategies to promote a greener and more sustainable future.

1. Current Status Overview
Currently, the global oil prices are operating at a high level, highlighting the economic advantages of deep-sea petroleum resource development. This has led to increased attention on the future operation and demand structure of the global Floating Production Storage and Offloading (FPSO) market within the Chinese shipbuilding industry.

Over the next five years, it is projected that the global FPSO market will witness the addition of approximately 60 new FPSO orders, with a total order value of around 73 billion US dollars. Notably, large FPSO orders are expected to comprise one-third of the total orders. These figures reflect the sustained demand for FPSOs in the global oil and gas industry, indicating the increasing significance of FPSOs in deep-sea petroleum production.

As global energy demand continues to rise, the development momentum of the FPSO market remains positive. More and more oil and gas companies are turning their attention to offshore fields, seeking new exploration and production opportunities. The inherent flexibility and cost-effectiveness of FPSOs make them an ideal choice for these projects.

Moreover, the growth of the global FPSO market is supported by ongoing technological innovations and improving engineering capabilities. Advanced technologies and equipment are enhancing the efficiency and safety of FPSO designs while increasing their production capacity and environmental performance. These advancements drive the development of the FPSO market, unlocking new possibilities for offshore petroleum production in the future.
1.1 FPSO Operations: Two Main Models
FPSO operations encompass two main models: the first involves oil companies placing orders with contractors to build FPSOs for their own ownership and operation. In this model, the oil company retains ownership and takes on the operation of the FPSO. The second model entails oil companies determining the field development plan and then inviting bids from leasing companies to construct the FPSO. The winning bidder among the leasing companies is responsible for building the FPSO.

1.2 Ownership Breakdown of FPSOs Ordered and Current Fleet
Of the 74 FPSOs ordered from 2013 to the present, 44 of them, accounting for 59.5%, belong to leasing companies. Among the current total of 216 FPSOs worldwide, 117 of them, constituting 54.2%, are owned by oil companies, slightly surpassing the number of leased FPSOs. These two types of ownership, however, maintain a relatively balanced state.

1.3 Active FPSO Leasing Market: Transactions and Trends
In recent years, the FPSO leasing market has seen active transactions, with leasing accounting for more than half of the total, approximately 60.8%. Over the past decade from 2013, an average of about 4.4 FPSOs were leased annually. Among the six FPSOs completed and delivered in 2022, three of them were part of leasing contracts. Among the current 34 FPSO orders, 18 of them, representing 52.9%, are leasing orders.
2. Industry Trends Overview
2.1 Historical FPSO Orders: Patterns and Market Recovery
Over the past 15 years, the global FPSO market has seen a total of 150 FPSO orders, averaging around 10 orders per year. However, the distribution of these orders has not been uniform, with some years witnessing as many as 20 FPSO orders, while other years saw only one order. From 2010 to 2016, the FPSO market experienced a significant downturn, followed by a gradual recovery supported by rising oil prices, leading to 10 FPSO orders in 2019. The outbreak of the COVID-19 pandemic resulted in a decline to only four FPSO orders in 2022. As the FPSO market continued to rebound, the number of orders reached 11 in the same year.

2.2 Factors Driving FPSO Demand: New Offshore Fields and Rising Oil Prices
The demand for FPSOs is driven by two main factors: the exploration and development of new offshore oil fields, which generate conventional demand for FPSOs, and rising crude oil prices, which stimulate shipowners to place speculative orders. As oil prices continue to rise, the demand for FPSO orders is expected to bounce back. It is projected that over the next five years, the global FPSO market will witness the addition of approximately 60 new FPSO orders, averaging around 12 orders per year. Among these, more than 40% will be for new builds, 40% for FPSO conversions, and 20% for redeployments. The total order value of FPSOs over the next five years is estimated to be around 73 billion US dollars, with approximately 65% attributed to new builds, 25% to oil tanker conversions, and 10% to redeployments of medium and small-sized FPSOs.

2.3 FPSO Market Forecast: Projected New Orders and Total Order Value
Amid the trend towards larger FPSOs, it is expected that over the next five years, approximately 20 large FPSOs will be ordered, accounting for approximately one-third of the total number of orders. The shift towards larger FPSOs reflects the industry’s focus on improving operational efficiency and maximizing production capabilities in deep-sea petroleum fields.
2.4 Embracing the Trend: Larger FPSOs and Market Opportunities
The steady increase in FPSO orders and the promising market demand for FPSO solutions present significant opportunities for the global FPSO industry. As exploration efforts expand into new offshore territories and oil prices continue to impact investment decisions, FPSOs remain a critical component of offshore oil and gas production strategies worldwide. The ongoing adaptation to market dynamics and technological advancements will play a key role in ensuring the continued growth and success of the FPSO market in the years to come.

3. FPSO Emission Reduction: An Immediate Priority
As FPSOs continue to be the favored offshore oil and gas development solution, global demand is set to remain strong in the coming years. However, this surge in demand raises concerns about potential increases in greenhouse gas emissions from oil and gas companies striving to improve their environmental footprint.

Estimates from Rytsad Energy indicate that this year alone, the FPSO industry is expected to emit approximately 38 million tons of carbon dioxide. Without intervention, this figure could rise to nearly 50 million tons per year by the end of the decade.

Recognizing the urgency of emission reduction, both oil companies and shipyards are actively implementing various initiatives. These efforts include transmitting power from shore to FPSOs to reduce internal power generation and adopting digital technologies to optimize operations, minimize downtime, and reduce fuel consumption.

Addressing emission reduction in the FPSO sector is now a critical priority. As the industry plays a vital role in offshore oil and gas production, adopting responsible and sustainable practices is essential to mitigate its environmental impact. In the following section, we will explore the strategies and initiatives aimed at making FPSO operations more environmentally friendly and the significance of their successful implementation.

4. Strategies for Reducing FPSO Carbon Emissions
As we continue to explore the topic of emission reduction in the FPSO industry, it is essential to consider various solutions that can contribute to a greener and more sustainable future. Here are some potential measures:

1. Power Generation Optimization: Enhancing the efficiency of FPSO power generation systems by using more efficient engines, turbines, or combined heat and power (CHP) systems. Transitioning to cleaner fuels like natural gas or incorporating renewable energy sources such as solar panels or wind turbines.

2. Waste Heat Recovery: Capturing waste heat generated during various FPSO processes and repurposing it for power generation or heating purposes. Utilizing heat exchangers or Organic Rankine Cycle (ORC) technology to convert waste heat into usable energy.

3. Carbon Capture and Storage (CCS): Installing CCS technology on FPSOs to capture and store CO2 emissions produced during hydrocarbon extraction and processing.

4. Alternative Fuels: Researching the use of lower-carbon intensity alternative fuels, such as biofuels or hydrogen, for FPSO power generation and propulsion systems.

5. Offshore Grid Connection: Exploring the possibility of connecting FPSOs to offshore grids, enabling them to access power from the grid in addition to onboard generation.

Discussion & Analysis
The future of FPSOs remains promising, with strong global demand anticipated over the next few years. As offshore oil and gas development continues to grow, FPSOs will play a crucial role in meeting production needs. However, this upward trajectory raises concerns about the associated increase in carbon emissions, highlighting the urgent need for emission reduction strategies.

Fortunately, various solutions can be implemented to address this pressing issue. Optimizing power generation systems through the use of efficient engines, turbines, and renewable energy sources can significantly reduce emissions. Moreover, energy management systems and waste heat recovery technologies offer valuable opportunities for energy conservation and emission reduction.

Carbon capture and storage (CCS) represents a viable approach to capture and store CO2 emissions, mitigating their impact on the environment. Additionally, exploring alternative fuels and enhancing operational efficiency hold promise in curbing carbon footprints.

Nonetheless, the implementation of emission reduction measures must consider the unique characteristics and operational requirements of each FPSO project. Moreover, collaboration among oil companies, shipyards, and technology providers is vital to drive industry-wide change.

Conclusion:
As FPSOs maintain their integral role in offshore oil and gas production, emission reduction becomes a paramount concern. By implementing a range of innovative solutions, such as optimizing power generation, utilizing waste heat recovery, and exploring alternative fuels, the FPSO industry can make substantial progress in minimizing its carbon footprint. Collaboration and a commitment to sustainable practices will be instrumental in shaping a greener future for FPSO operations.

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