Release Notes QUE$TOR

Transcription

1 Release Notes QUE$TOR 2017 Q3 Release November 2017 QUE$TOR is a registered trademark of IHS Markit. Windows is a registered trademark Corporation. of Microsoft

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3 Contents Introduction 2 Version compatibility 3 What s on the CD-ROM 3 System requirements 4 Application execution 5 General upgrades in QUE$TOR 2017 Q3 6 Electrically Heat Traced Flowlines (EHTF) 6 High grade carbon steel material options for onshore pipelines and flowlines 10 Update of subsea item umbilical terminations 11 Existing subsea as new tie-back type 12 Plate and frame heat exchanger added as an equipment option in oil processing 12 Selected other technical revisions 15 Cost database update 16 General 16 Oil price trend 17 Currency market 19 Steel 21 Equipment 23 Bulks 25 Offshore rigs 26 Offshore vessels 29 Subsea 32 Labour 33 Land rigs 36 IHS Markit November 2017 Page 1

4 Introduction We are pleased to provide the 2017 Q3 release of the QUE$TOR cost estimating software. All cost databases have been reviewed and updated to incorporate current unit rates, exchange rates and man hour costs for all regions to reflect third quarter 2017 prices. The main technical enhancements made to QUE$TOR 2017 Q3 are: Electrically Heat Traced Flowlines (EHTF). High grade carbon steel material options for onshore pipelines and flowlines. Update of subsea item umbilical terminations. Existing subsea as new Tie-back type. Plate and frame heat exchanger added as an equipment option in oil processing. The above changes as well as numerous other improvements and minor bug fixes have been made at the request of users and through internal review. We actively encourage feedback from users as a means of improving the accuracy and ease of use of the program. Page 2 November 2017 IHS Markit

5 Version compatibility Projects created in QUE$TOR v8.0 and later are compatible with QUE$TOR 2017 Q3. However, projects created or saved in QUE$TOR 2017 Q3 cannot be opened in earlier versions. Opening a project created in an earlier version of QUE$TOR will result in the costs and technical calculations automatically being updated, except where unit rates or results have been locked when creating the original project. Changes will be made permanent when the project is saved and the case will no longer open in the earlier version. It is therefore advisable to make a copy of your project file before opening it in the new version. QUE$TOR allows multiple versions of the program to be installed side by side in order to view projects created using earlier databases. What s on the CD-ROM The QUE$TOR 2017 Q3 CD-ROM contains the following: QUE$TOR (2017 Q3) installation files. An Application directory containing QUE$TOR (2017 Q3) program files. A Documents directory containing a copy of the full help file, the quick start guide and a copy of the full and short release notes in portable document format (.pdf). A dotnet Framework directory containing the executable to install the required.net Framework on your machine if it is not already installed. A FlexNet directory containing the executables and installation instructions necessary to set- up and manage a network licence server. A Sentinel SuperPro Driver directory containing the executable to install the licence security key (dongle) driver (for single user licence dongles) on your machine if it is not already installed. A Utils directory containing a set of utilities to assist IHS Markit support staff with troubleshooting should any problems arise whilst installing or running the application. IHS Markit November 2017 Page 3

6 System requirements QUE$TOR 2017 Q3 Operating system Application disk space Disk space / project Disk space / procurement strategy Windows 7 SP1 / Windows 8 / Windows 8.1 / Windows 10 [1] 275 MB ~1 MB ~3 MB Minimum monitor resolution 1024 x 768 Licensing Network or USB port [1] The 32-bit (x86) and 64- bit (x64) versions of these operating systems are supported. Installing the software from the QUE$TOR installation CD-ROM The software on the QUE$TOR CD-ROM can only be run if you have a valid security key (dongle) or access to a network licence but these are not required when installing the software. Load the CD-ROM into your CD drive. The setup program will automatically detect if you don t have the required Microsoft.NET Framework version already installed and provide a warning. It can be downloaded from Microsoft s website by clicking on the Yes option. Alternatively, run the file located in the dotnet Framework sub-folder of the QUE$TOR CD-ROM. To install the Sentinel SuperPro dongle driver (if not already installed) run the Sentinel System Driver Installer msi located in the Sentinel SuperPro Driver sub- folder of the QUE$TOR CD- ROM. Reboot your machine to complete the installation of the Sentinel driver. Note, this step is only required for single user / standalone licensing. Page 4 November 2017 IHS Markit

7 To install QUE$TOR 2017 Q3 run the file setup.exe in the root folder of the QUE$TOR 2017 Q3 CD-ROM. Once installed, an icon for QUE$TOR 2017 Q3 will appear on your desktop. A group will also appear on the start menu under All Programs\IHS Markit\QUE$TOR 2017 Q3 containing shortcuts for the Database editor, the Project editor, the Project viewer, the main QUE$TOR application and the Unit editor. If you get any warnings during the installation then please contact the QUE$TOR support desk, support_questor@ihsmarkit.com. You are now ready to run QUE$TOR providing your dongle or network licence has been updated to run QUE$TOR Offshore or Onshore 2017 Q1. Note: QUE$TOR 2017 Q3 supersedes previous versions but can be installed alongside them. You should install the Sentinel security key software before the dongle is plugged in. If your dongle has not been updated to run QUE$TOR 2017 Q1/Q3, contact the QUE$TOR licensing desk ( questor_ licensing@ihsmarkit.com ) to get an update for your dongle licence. If you use a network licence please ask your licence administrator to contact the QUE$TOR licensing desk. Application execution To run the software click Start and follow All Programs > IHS Markit > QUE$TOR 2017 Q3 > QUE$TOR 2017 Q3 or double-click the icon created on your desktop. IHS Markit November 2017 Page 5

8 General upgrades in QUE$TOR 2017 Q3 In response to feedback the following features have been implemented in QUE$TOR 2017 Q3. Electrically Heat Traced Flowlines (EHTF). High grade carbon steel material options for onshore pipelines and flowlines. Update of subsea item umbilical terminations. Existing subsea as new Tie-back type. Plate and frame heat exchanger added as an equipment option in oil processing. Electrically Heat Traced Flowlines (EHTF) Electrically Heat Traced Flowlines (EHTF) technology has been added to subsea flowlines. In order for electrical heating to be available to individual flowlines, it must be selected at the component level in the Subsea flowlines form (Figure 1). Figure 1 - Subsea flowlines form The EHTF option is selected only when the production flowline is insulated and the chosen insulation material is any of the Pipe-in-Pipe (PiP) insulation selections (i.e. PiP - PU Foam, PiP - Aerogel or PiP - ITP). Page 6 November 2017 IHS Markit

9 Changing the insulation material to 'None' at the subsea component level will deactivate the electrical heating option and remove electrically heated flowlines. Changing the insulation method to Wet - PU foam will change the heating method to DEH. When the electrical heating is selected, all production flowlines will have electrical heating applied by using the appropriate technology. The electrical heating selection will be configured and available for individual flowlines. This includes defining the type of operation and target temperature on the subsea schematic flowline link form. Figure 2 - Electrical heating on subsea flowline link form The electrical heating configuration is shown in Figure 2. The default operation of intermittent refers in general to operations where the electrical heating is applied for relatively short periods of time, e.g. during start-up or shut-down procedures. The operation mode can be switched to continuous, which is most commonly used during the declining phase of existing fields or for long distance tiebacks. The target temperature is the desired temperature of process fluid intended to prevent hydrate or wax formation. By default the hydrate prevention target temperature is set to 25 C. The cost elements of the EHTF technology are estimated in the following places: Subsea link cost sheet Production or Test service Flowline: This contains the material costs for the electrical heat tracing and optical cable and the fabrication cost (EHTF cable + optical cable + fabrication) to lay these cables around the subsea PiP flowline. If the flowline is longer than 20 km, additional costs IHS Markit November 2017 Page 7

10 for midpoint connections are included. Subsea power is provided via an umbilical that conducts electricity from the topside down to an umbilical termination assembly and from that to the pipeline using power flying leads. The cost for dedicated transformers is also included for long flowlines to mitigate against power losses (Figure 3). Figure 3 - Subsea link cost sheet: EHTF material costs Subsea link cost sheet - Umbilicals: EHTF dynamic power cables are present only when the subsea flowline is longer than 20 km (Figure 4). Figure 4 - Subsea link cost sheet: EHTF umbilical material costs Page 8 November 2017 IHS Markit

11 Subsea riser cost sheet: This contains the cost of the EHTF dynamic power umbilical cables within the EHTF riser. It is assumed that each EHTF flowline has one EHTF dynamic power umbilical cable and every dynamic power umbilical cable requires two bend stiffeners (Figure 5). Figure 5 - Subsea EHTF riser costs Topsides cost sheet: This contains the cost of power control facilities associated with the DEH and EHTF electrical heating of subsea flowlines (Figure 6). Figure 6 - Topsides EHTF power control facilities Other costs: The inclusion of EHTF for both intermittent and continuous operation may also adjust riser costs and topsides costs as the quantity of utilities are recalculated. EHTF flowlines are deployed only by a reeling vessel and by towing. S or J-lay methods are not possible due to the continuous electrical wires. The towing method is not available at the moment. The additional durations, due to the installation of EHTF dynamic umbilical cables and equipment, will affect the durations of the lay vessel and diving support vessel (DSV) for riser, flowline links, and PLETs as well as the transit loadout and weather downtime. When continuous operation is selected, the power demand for the subsea EHTF is passed onto the topsides power facilities load. For intermittent operations, it is assumed that the power demand is needed during lower power facility operations and therefore there will be no additional capacity added to the total topside power capacity. Additional allowance for intermittent operation power demand is calculated and included in operating expenditure. IHS Markit November 2017 Page 9

12 Power demand to heat a flowline varies with the size, thermal transfer coefficient of the insulation material and target temperature. The value of the thermal transfer coefficient is commonly in the range of W/m2.K for flowlines with PiP thermal insulation. Lower coefficients may apply for buried flowlines. The efficiency of such a system can vary between 80% and 90% potentially resulting in significantly lower power demand than the corresponding case with Direct Electrical Heating (DEH). Given its steady state nature, QUE$TOR should not be used to provide information on transient performance and response time of EHTF technology, like how to optimize the power provided versus the time required to reach the target temperature. It is suggested therefore to gather information independently on this dynamic behaviour. High grade carbon steel material options for onshore pipelines and flowlines Carbon steel grades X65, X70 and X80 have been added as material options for onshore pipelines and flowlines. This is in addition to the current Carbon steel X52, Carbon steel X60, Clad 316 stainless, Duplex, CRA and GRP options. Carbon steel X65: API 5L Grade X65 carbon steel (density 7850 kg/m³ [490 lb/ft³], specified minimum yield strength 448 MPa [65000 psi], corrosion allowance 3 mm). Carbon steel X70: API 5L Grade X70 carbon steel (density 7850 kg/m³ [490 lb/ft³], specified minimum yield strength 483 MPa [70000 psi], corrosion allowance 3 mm). Carbon steel X80: API 5L Grade X80 carbon steel (density 7850 kg/m³ [490 lb/ft³], specified minimum yield strength 552 MPa [80000 psi], corrosion allowance 3 mm). The Carbon steel grades X65, X70 and X80 are more expensive than Carbon steel X60 although they can be a cheaper alternative when yield stress is a determining factor in pipeline sizing. In some scenarios a more expensive material with a higher yield strength can be selected which decreases the pipeline wall thickness resulting in a cheaper overall pipeline. In onshore applications these higher grade steel materials have no other changes in installation durations or ancillary costs as compared with the default Carbon steel X60. The high grade steel materials are never selected by default but can be chosen by the user. Page 10 November 2017 IHS Markit

13 Update of subsea item umbilical terminations The umbilical terminations of subsea items have been updated to allow for the distance of the item from the umbilical termination point to be defined. Figure 7 - Subsea item - Umbilical terminations Within the umbilical terminations group box the number of wells serviced by the Umbilical Termination Assembly (UTA) and Subsea Distribution Unit (SDU) has been consolidated into one entry box. This will enable the inclusion of a satellite well to be added to an existing template or cluster and account for the increased size in the SDU requirement for extra connections. The lead lengths of the connections can now be specified allowing for longer routing of the supporting utilities. The lead length is the distance from the UTA to the SDU or well, or from the SDU to individual wells. For satellite wells a default assumption of 1 hydraulic and 2 electrical flying leads will now be included as these are assumed to run from the UTA to the well. Upgrading models with satellite wells to QUE$TOR 17.3 will default to having these extra flying leads being included from the UTA. IHS Markit November 2017 Page 11

14 Existing subsea as new tie-back type There is now a new option for the tie-back type within the riser base properties form (subsea schematic), called "Existing subsea". This is to model the situation of wanting to tie-in new subsea wells into an existing subsea manifold system. When this option is selected, there will be no costs for risers or shore approach equipment. All flowlines directly linked to the root component have a tie- back pipeline end termination (PLET) by default for water depths over 100 m. When a Subsea tie-in is selected the number of connectors will be half that of a riser base tie-back. This is because there are no connections made to a riser, only to the flowlines. This is visible in the Connectors / hubs section of the subsea cost sheet. The new Subsea tie-in termination type is also available when the Sink tie-back type is selected. Figure 8 - Tie-back properties form Plate and frame heat exchanger added as an equipment option in oil processing A user selectable option for gasketed plate and frame heat exchangers has been added to the heat exchanger options in Topsides and Production facilities oil processing section. The Plate & frame option is accessible in the Type drop down box when accessing the heat exchanger properties input ( Figure 9 ). When selected a gasket type plate and frame exchanger will be sized for the service required. Due to the design these are intended for use up to Page 12 November 2017 IHS Markit

15 approximately 200 C and 20 barg, conditions above these will result in a warning but the calculation will still estimate a size for the duty required (verification of feasibility may be required). Figure 9 - Heat exchanger properties When accessing the heat exchanger details ( Figure 10 ) the duty, weight, and dimensions of each train can be seen along with other sizing parameters. While varying number and dimensions of plates can result in comparable duty and throughput capacity, the calculated size provided is typical of many exchangers of this type on the market. Figure 10 - Heat exchanger detail IHS Markit November 2017 Page 13

16 When displayed on the cost sheet (Figure 11) the previously included heat exchangers will still be shown along with two new line items for plate & frame heaters and coolers. Figure 11 - Cost sheet details Page 14 November 2017 IHS Markit

17 Selected other technical revisions QUE$TOR 2017 Q3 Release Notes A number of other technical revisions have been made to the application. The bridge icon in the project schematic can now be rotated by 90. This enables users to more accurately represent their bridgelinked configuration. Links on the main schematic now have automatic labels which show the length of all pipelines or power cables. If a link does not contain a power cable or pipeline, no length will be displayed. A piping and valves quantity and cost is now added for single flowline pass-through riser base components. Conductors and drilling template weights are now zero for exploration and appraisal drilling rig types. Reservoir temperatures of drilling components now change appropriately when the component reservoir depth is adjusted. This uses a linear relationship, based on the field level reservoir depth and temperature. There is now an editable 'Wellhead temperature' value in the input panel of the Wellpad group component. This enables greater control and more accuracy in the way production fluid temperatures are passed between components in QUE$TOR. The calculation for the onshore flowing wellhead temperature has been improved and now includes the heat loss due to the choke at the wellhead. IHS Markit November 2017 Page 15

18 Cost database update Substantial effort has gone into reviewing all cost databases to bring them in line with third quarter 2017 costs. Note: On saving the project, the QUE$TOR 2017 Q3 cost estimate will overwrite earlier costs except where those costs were locked on the cost sheet or in the database. Therefore if you wish to retain a copy of your original estimate you should first create a duplicate of the project before opening and saving it in QUE$TOR 2017 Q3. The following sections outline where the most significant changes to the regional cost databases have been made. General The extended oil price downturn is more and more likely to have longterm effects on the global oil and gas industry in a number of key areas, including capital investment and workforce. Most upstream companies have reinvented themselves to adapt to the new 50 $/bbl oil reality after taking tough restructuring or consolidating decisions. Oil's future direction appears increasingly dependent on the conflict between the output cuts decided by the Organization of the Petroleum Exporting Countries (OPEC) and the increase in US shale production. OPEC seems to have lost its traditional role of a stabilizing force due to the shale industry, which is now much more efficient and quick at responding to the market demand fluctuations. Given the harsh conditions the industry has faced over the last few years, it is not a surprise that the new survival attitude has resulted in a shift towards shorter- cycle project investments. After the significant number of projects deferred or cancelled worldwide, the enthusiasm for long- term, complex major capital developments has almost completely vanished. This different investment landscape, while lowering the risk for individual companies, also generates uncertainties on the future of energy supply and security, as doubts arise on how the current industry will manage to meet the supply needs of the future. Since the price of oil crashed in 2014, a huge number of jobs have been cut in the sector worldwide. Oilfield services and equipment have had a difficult time as upstream capital spending was under extreme pressure. Several large- scale consolidations were announced in this challenging business environment and layoffs implemented. Page 16 November 2017 IHS Markit

19 Before the downturn, one of the major challenges the industry used to face was the lack of specialized, talented personnel. In a time of massive layoffs, the concern to find the skilled workforce, required to satisfy the needs of the shale revolution as well as the growth in deep water, seems very distant. However, a different, crucial question is posed now to the industry: will the people come back to the oil and gas industry when the recovery starts? Oil price trend After averaging 54 $/bbl during the first quarter of 2017, Brent oil prices dropped below 50 $/bbl in early May, as a result of high stocks and rising Libyan production. In September 2017, oil prices rose up to 59 $/bbl, that is more than double the historical low of 26 $/bbl reached in January 2016, although still very far from the high levels of about 110 $/bbl seen in summer 2014 (Figure 12). The spread between Brent and West Texas Intermediate (WTI) has not been as wide since the US lifted its ban on oil exports in December The combination of strong factors in favour of Brent and limiting factors against WTI has helped push the spread to a record high. OPEC s production cut decision has supported crude oil prices since November This caused a fall in global crude oil inventories, which sustained Brent crude oil prices in particular. In addition, at the end of September, Turkey threatened to block the flow of Kurdish oil through pipelines crossing its territory in order to oppose their separatist referendum. Fears of a potential supply outage and rising crude oil imports from China pushed Brent crude oil price to rise even further. In contrast, the WTI crude oil price did not increase as much because of the increased US crude oil production; US inventories were also high after the reduction in crude oil demand by the refineries hit by hurricane Harvey. IHS Markit November 2017 Page 17

20 Figure 12 - WTI and Brent crude oil prices (source: Most forecasts are unable to keep up with the increasing volatility of oil supply and demand because the oil industry has changed in fundamental ways. In the past, the oil price trend was much easier to predict: usually the oil price picked up in spring and fell in autumn and winter. The oil price volatility in the last three years can be in part explained due to the following reasons. The US production of shale oil increased. Shale oil producers have become more efficient in extracting oil. They found ways to keep extracting oil despite falling prices, becoming responsible for changing the US from being an oil importer to an exporter. The variation of the US dollar (USD) value significantly impacts worldwide trade. Global uncertainty made the value of USD increase significantly in All oil transactions are paid in USD and a strong USD helped the decline in the price of crude oil for exporting countries. Page 18 November 2017 IHS Markit

21 OPEC s decision to cut production came too late, only at the end of November In the past OPEC used to control oil production to maintain a price target of 70 $/bbl. In 2014, Saudi Arabia, OPEC s biggest contributor, lowered its price to maintain its market share, stop the expansion of US shale producers and halt Iran from doubling its oil exports. At first, lower prices forced many US shale producers out of business, reducing the competition. However, some shale producers managed to keep the oil pumping and demand for OPEC oil fell as a result of increased US supply. However, the increased strength of the dollar meant that OPEC countries could remain profitable at lower oil prices, putting other exporting countries (e.g. the US) in difficulty. It is very difficult to predict how the oil price will evolve in the near future as there are multiple, extremely diverse factors impacting its trend. The majority of the industry thinks a return of the oil price to the pre-crisis levels is improbable. In the long term, it is likely that there will be a shift in the predominant role affecting prices: increased world demand will likely overtake global supply to drive oil prices up as the cheap sources of oil will have been exploited at that point, making it more expensive to extract oil. In conclusion, oil price forecasting is not an easy task, as forecasts depend on how the US shale oil production will evolve, what measures will be taken by OPEC, and how fast the global economy will grow. In addition, impacts due to natural events can be also quite significant like the recent disruptions to the US oil and gasoline delivery system caused by hurricanes Harvey and Irma. Currency market Currency shifts in markets are supported by several factors, the most significant being economic fundamentals, political and geo-political risks and future expectations. Since Q1 2017, international currency movements were mixed versus the USD. The American currency remained soft, with a sharp drop in value seen through July, partially related to the investigation into the Trump campaign s ties to Russia. There is not much indication that the remaining months of the year will be any kinder to the USD, although there is a small possibility of a rebound in Q4. IHS Markit November 2017 Page 19

22 The Canadian dollar (CAD) performed strongly, reaching a two- year peak versus the USD. The Canadian economy though began to decelerate in July after a frantic first half of the year in which its economic growth achieved the top spot among G7 economies. Also in July, its growth flattened as a result of the decline in automobile manufacturing and oil production, ending a remarkable eight month period of economic expansion. In Europe, the Euro (EUR) has increased significantly in strength against the USD since the first quarter 2017 as the EUR remains well supported by investors seeking less risk and higher returns outside of the US. The common-currency bloc recorded a period of robust growth, especially after the election of the new French president Emmanuel Macron. Political turbulence in Spain, after Catalonia s declaration of independence, could generate some instability for the EUR. The British pound (GBP) is poised to remain soft. Brexit negotiations are proving to be more difficult than expected, increasing uncertainty and domestic prices. In Latin America, the first positive economic data have started to emerge, confirming that a slow recovery is ongoing across the region. The Mexican peso (MXN) and Chilean peso (CLP) were the only currencies strengthening in value since Q Asian regional exchange rates have been quite stable despite ongoing regional geo-political risks. The Korean won (KRW) decreased while the Chinese yuan (CNY) strengthened to its highest value in more than a year, reflecting the generally weaker USD. The economy of the Asian region continued its momentum as solid global trade flows and a moderate recovery in commodity prices supported growth. The CNY, the Malaysian ringgit (MYR), the Singaporean dollar (SGD), and the Thai baht (THB) were the best performers. The Australian dollar (AUD) has slightly strengthened over the past six months. The Australian economy performed relatively well, with consumer confidence and business confidence rising, and employment growth remaining strong. Table 1 gives the exchange rates, averaged over the last two weeks before the end of each quarter, of the major local currencies expressed as local currency equivalent to 1 USD, and the percentage change between Q and Q Page 20 November 2017 IHS Markit

23 Region Country Local currency Q Q Percentage change North America Canada CAD % South and Central America West Europe East Europe Asia Africa Middle East Argentina ARS % Brazil BRL % Chile CLP % Colombia COP 2,901 2, % Mexico MXN % Peru PEN % Venezuela VEF % Eurozone EUR % Norway NOK % UK GBP % Czech Republic CZK % Kazakhstan KZT % Poland PLN % Russia RUB % Turkey TRY % Ukraine UAH % Australia AUD % China CNY % India INR % Indonesia IDR 13,316 13, % Japan JPY % South Korea KRW 1,115 1, % Malaysia MYR % Singapore SGD % Taiwan TWD % Thailand THB % Vietnam VND 22,483 22, % Algeria DZD % Nigeria NGN % Angola AOA % South Africa ZAR % Saudi Arabia SAR % UAE AED % Table 1 - Exchange rate fluctuations of major local currencies Steel Steel markets experienced a volatile couple of quarters, with prices for the various products required for upstream developments moving in different directions over the last six months. In addition to the longterm fundamental problems plaguing this market, there are new factors contributing to the volatility, most prominently a resurgent protectionism in the United States. IHS Markit November 2017 Page 21

24 While there are many complicating details, broadly speaking steel costs have fallen in the US and risen in both Europe and Asia. This may seem unsound given how much more aggressively the US has been seeking to protect its national industry by filing trade cases against foreign suppliers, but steel product prices are still higher in the US despite the recent changes. The recent reductions in steel prices in the US stem from the fact that the aggressive increases pushed for by mills early in the year did not have the demand to sustain them. For the first time in recent history, European steel prices sank lower than their Asian counterparts in Q2 for some products, but they have since recovered. This underscores just how much this market has changed, as this would have been unthinkable a few years ago. The Section 232 investigation opened by the US to look into importing activities in the steel industry is tasked with assessing the threat these imports pose to national security. Antidumping tariffs that are already in place will remain, and additional quotas can be imposed on source countries. The industry is eager to see this matter play out entirely, as many important supply-chain and procurement decisions hinge on its outcome. Antidumping measures enacted over a year ago mainly targeted China and a few other aggressive exporters of steel. As a result, imports from China have fallen, but consumers have found other foreign sources, leading to an overall increase in steel imports. Crude steel production is up so far this year, driven mainly by China, but also supported by Europe. Year- on- year, Chinese steel production increased by 5%. European increases have been stronger as the continent had many shuttered mills that could be brought back. In France, steel production increased by over 30% year-on-year. In the United States, the increase has been surprisingly mild at only 2% given the looming Section 232 and the general spirit of protectionism permeating the economy. Demand has yet to catch up with the growth in production, and as China produces half the steel in the world it is expected to be the first region to experience the effects of oversupply. As it has done previously, the Chinese government s response will probably be to limit production somewhat, while subsidizing other mills and encouraging them to keep exporting. Protectionist measures especially the Section 232 trade case in the United States could cause severe disruptions which are hard to predict. Linepipe and Oil Country Tubular Goods (OCTG) are together a sizeable proportion of the steel consumed during field development work. Linepipe costs have increased most strongly in Europe, especially when considering the Euro s appreciation against the USD. In the US, imports have continued to play a big role despite the trade case being Page 22 November 2017 IHS Markit

25 investigated. This has made US linepipe costs track with Asian changes. Asian linepipe costs have been flat overall, after falling then rising by a few percentage points each quarter. The most recent changes were due to increased hot rolled coil costs being passed on to buyers. OCTG costs increased strongly during the second quarter, before falling slightly in the third. The rally in Q2 was driven by the increased drilling activity in North America. As the rig count increased every week, buyers realized that most of the OCTG stockpiled as a result of the downturn was not fit for their purposes. This led to a shortage which invigorated both local and foreign mills exporting OCTG to the US. As Section 232 develops, it is good to keep in mind that this market is likely to witness some momentous changes. European OCTG costs were most volatile, increasing early in the year with US drilling activity, then dropping in Q3 as activity slowed and with it the opportunity to export. Overall the results in this update were an increase in casing costs, while tubing costs were corrected slightly downwards as they had been overestimated in the previous release. Other steel products important to the upstream industry are shared with larger end- users (such as automotive, manufacturing, and construction). For these products upstream activity has a much smaller impact on the supply/demand balance, and therefore they react to wider trends in the world or local economies. Rebar and structural steel are good examples. Prices for these products fell in the US and increased in Europe and Asia, somewhat closing the gap between the regions, though the US remains more expensive in both product categories (though European rebar prices are currently resurgent). Construction activity has been robust in both China and Europe, while a large infrastructure spending bill is expected in the USA as well. If that activity were to continue, the steel market may finally achieve some kind of supply/demand balance again after years of being in overproduction. Equipment A drop in oil prices and the subsequent downturn in upstream activity will have a different impact on each of the many markets that contribute to project development. Equipment costs benefit from lower oil prices as refineries expand to try and take advantage of the improved economics, and this new demand tends to outweigh any losses from upstream project cancellation. This bump in demand can IHS Markit November 2017 Page 23

26 last from a couple quarters to a year, and helps protect this market from the need to react by dropping prices or reducing supply capacity. After the demand uptick was over and downstream investment cooled, almost two years of uninterrupted declines in equipment costs followed. The prices dropped slowly, which helped elongate the decline. Many equipment suppliers engaged in restructuring in an effort to lower costs through more efficient practices (e.g. streamlined supply chains, standardization, modular designs), and some mergers and acquisitions were witnessed in this market as well. The first quarter of 2017 saw the first increase in costs in this market since mid Optimism was beginning to cautiously return to the industry, and a growing number of players recognized that upstream investment was inevitable and necessary to avoid increased supply volatility in the future. The rebound in steel prices helped suppliers justify their increases, and prices crept slowly upwards. In the second quarter of the year, some equipment category prices increased slightly, but the majority stayed flat. Operators announced that they expect to increase their capital expenditure upstream, and several memoranda of understanding for future collaborations were signed between manufacturers to optimize efficiencies. Despite these many positive developments, suppliers were unable to rely on any solid demand to fill their order books and justify increasing their prices. This situation has unfortunately been carried forward into the third quarter as well. Currently, negotiating power remains with the buyer. So long as demand is low enough to maintain this imbalance, suppliers will find it difficult to come up with a strategy for survival that doesn t rely on simply weathering the downturn. Higher steel prices could lead to significantly increased equipment costs, but as long as suppliers are competing for what little activity is out there prices are unlikely to break away from tracking activity. Arguably, protectionism in the steel market could cause a significant enough disruption in this market to change the situation in favour of suppliers. Overall, equipment costs increased slightly. Steel costs increased strongly in Asia and Europe, and that led to a small increase in equipment costs. Turbines and generator sets were the only categories to increase beyond 3%, with all other equipment types changing by less. As demand is low, it is not surprising that lead times are at record lows as well. Page 24 November 2017 IHS Markit

27 Going forward, costs in this market should begin to rise. They have very little room to fall, and as the downturn enters its fourth year, upstream investment must be forthcoming in order to avoid even more volatile swings in commodity prices and supply balances. Bulks The upstream bulk market is comprised of a range of items that are made and sold typically in high volumes. These include concrete and cement, wiring and electrical components, instrumentation and valves, paint, asphalt, insulation, and many others. The construction industry is the predominant source of demand for the various sub-markets, and as their most influential end-user its trends can overrule other factors in determining how costs move. Therefore pricing in these markets can be broadly expected to track with construction spending and activity, there are exceptions to this but they tend to be small specific elements of the overall market. Prices in this market have increased by a couple of percentage points, mainly due to stronger demand growth from construction and manufacturing. Global construction spending is getting stronger, with both the total spending and the growth in spending this year outstripping what was achieved in This has raised prices for many of the materials tracked as part of this market, especially over the third quarter of the year. Combined with inflation, this led to an overall increase in bulk market prices. Cement and concrete prices followed their seasonal trends, tracking construction planning and activity. Construction spending has been especially strong in the US, but other regions are also enjoying modest growth. Furthermore, while upstream activity is a small portion of overall cement demand, a resurgence in drilling and completions activity onshore in the US will help bolster demand for the next few quarters. The only factor dragging down the US construction spending outlook at the moment is the uncertainty surrounding any infrastructure initiatives the US government may propose, and whether any proposals can make their way through the approval process. Ferrous metal based wire and cable prices have moved higher due to speculative buying of ferrous metals in China, in addition to supply chain disruptions in the country. Furthermore, the Chinese government has pushed to improve air quality, which has resulted in reduced supply, IHS Markit November 2017 Page 25

28 and thus price increases in some materials. Asia s Q3 wire and cable costs increased by a couple of percentage points in local currency terms. While the global construction outlook is upbeat, the uncertainty surrounding the politics of Brexit and the consequences it will have for Europe complicates the picture in that region. Demand for bulk goods is beginning to recover from China s shift away from construction growth more than three years ago. While the level of demand itself is still appreciably lower than it was in 2014, prices are beginning to recover due to market fundamentals, as opposed to bottle- necks or other temporary aberrations impacting commerce. With the exception of some oilpatch specific elements, bulks being mainly tethered to something as central to our modern way of life as construction activity means that this market is unlikely to have to reckon with a downturn that threatens its survival. Offshore rigs The international offshore drilling market remains weak due to the low oil price and the continued oversupply. This difficult and long- lasting period of depressed activity in the industry looks set to persist, with no definite indication of when it will ease off. The number of rigs waiting for work continues to be high and day rates are near or below operating costs for some rig types in a few regions. Many contracts come at undisclosed day rates as the rate is so low that companies do not want to show it to both investors and competitors. Rig owners continue to defer deliveries, with some being moved into 2018 or Slight improvements in the market have focused on certain asset classes and regions. A few areas, like the North Sea, have started to show a little positivity, with a number of previously cancelled or postponed projects finally moving forward again. The number of projects being revisited is promising although the market is a long way off from witnessing pre-oil crisis activity levels again. Over the last few months a number of new offshore discoveries were also reported by operators in Europe, the Far East, Latin America and North America. The limited numbers of new fixtures has once again made it very difficult to estimate day rates for each rig class in each region. Table 2 shows the worldwide average day rate change for the different classes of offshore rigs used in QUE$TOR since Q The reductions are moderate and uniform for all rig types. Page 26 November 2017 IHS Markit

29 QUE$TOR rig classification Floater 1500 ft: Water depth <=1500 ft (450 m) Floater 3000 ft: Water depth <= 3000 ft (900 m) Floater 5000 ft: Water depth <= 5000 ft (1500 m) Floater 7500 ft: Water depth <= 7500 ft (2300 m) Floater >7500 ft: Water depth > 7500 ft (2300 m) Worldwide average day rate change -4% -4% -4% -4% -3% Jackup -4% Table 2 - Worldwide average day rate change for floaters and jackups since Q Northwest Europe remains one of the most active regions in the global floater market. Tender activity is lively here when compared to other regions. Longer-term work has become available, and there is a high potential for the demand to increase significantly over the next two years. However, the future mostly depends on how much of this potential work is secured, and whether operators take the risk at a Brent crude oil price that is trapped in the $/bbl range. Rig contractors are still forced to offer extremely competitive rates because of oversupply, and some are putting rigs to work on deals that appear to be unprofitable to keep utilization levels up. Further scrapping to reduce the total fleet is expected but this is unlikely to affect the number of marketed rigs. Similar surplus problems persist also for the jackup market, which has seen a decrease in the number of tenders with the seasonal end of summer slowdown. In North America, jackup demand and contracting activity has slowed down during the hurricane season. In late August, hurricane Harvey passed through the US Gulf, as a Category 4 strength hurricane. Fortunately operators have reported only minor or no damage to their platforms and equipment as several rigs were moved in advance to other parts of the US Gulf. As with other regions, North American fixture rates are mostly undisclosed these days. However, market sources continue to indicate that rates remain low and have not yet begun to creep upwards as availability remains abundant. IHS Markit November 2017 Page 27

30 In South America, the offshore rig market is not expected to offer big surprises. It looks likely that Petrobras will continue to terminate contracts, and will only renew or sign new ones for its most important projects. However, this negative trend may be offset and potentially reversed by a rise in work done by foreign operators in Brazil and elsewhere in the region. In Central America, the demand for floaters remains constant, with all units working in Mexico, but there is a good chance that more work will emerge in Trinidad and Tobago as well. Demand for jackups will likely see only modest gains in the next few years. South American demand is expected to stay completely flat throughout 2019 at two units, both of which will be working in Venezuela. In the Asia-Pacific region the active floater fleet is slowly growing, with the confirmed relocation of a number of floaters to the region in the past half year; all except one are ultra- deepwater units and the majority are mobilizing on the back of confirmed contracts. The Indian Ocean is one of the few areas in the world where jackup utilization has grown in the last few years. Its recent growth means that the Indian Ocean has surpassed Southeast Asia as the region s leading sector in terms of average demand. Unlike the Indian Ocean, with ONGC being the main demand driver offering multiple multi- year contracts every year, Southeast Asia is made up of many countries that separately contribute to its unbalanced recovery. There are some evident improvements in Vietnam and Malaysia, where many short- term contracts have been awarded in the last few months, but recovery has yet to start in the other countries like Thailand or Indonesia. In terms of demand, Australia and New Zealand are two of the most active areas for deepwater semi-submersibles, with numerous current tenders. In West Africa, after a short surge in fixture activity, the third quarter of 2017 has returned to a quiet baseline. At present, a number of rigs in the floater market are on standby preparing to begin charters in Nigeria and Cote d Ivoire, while various units are also preparing to come off charter and demobilize to stacking locations. The sector overall remains quiet; however, tenders and requirements continue to appear at a slow but relatively steady pace. All attention is on the high profile exploration campaigns currently underway offshore West Africa with promising results starting to come to light. In the jackup segment, while the market is exceedingly muted at present, a number of rig requirements remain that may develop into formal tenders within the coming months. Page 28 November 2017 IHS Markit

31 For the Middle East, several ongoing tenders and pre-tenders for term work suggest that significant demand may increase at the beginning of There has been little activity in the Mediterranean and Black Sea sectors over the past few months with little change in semi-submersible demand and reduction in jackup demand. Shortage of recent fixtures has made this update once again quite challenging. The spider diagram in Figure 13 shows the percent changes implemented in QUE$TOR 2017 Q3 to the offshore rig day rates depending on rig class and region. Only Australian, South American, Canadian and US Gulf jackup rigs had a positive variation in their rates whilst all the other regions showed a flat or negative trend. Day rates for all floater classes showed a global decrease. Some of these regional rates should not be seen as a real market trend but rather more as an adjustment to make them closer to the most recent marketed contract value. Figure 13 - Worldwide offshore rig day rate changes Offshore vessels Despite improved tender activity and increased optimism, the global offshore support vessel (OSV) market continues to be weak. It has been approximately three years since the oil price collapsed, marking IHS Markit November 2017 Page 29

32 the start of one of the worst recessions the offshore industry has ever seen. In the early stages of the downturn, the general opinion was split between those believing this crisis would be short and others predicting a long and tough time ahead. Today, most offshore vessel companies and oil operators recognize that the current harsh conditions could continue for years followed by a slow path to recovery. With the total vessel supply far exceeding market demand, day rates have decreased to break-even levels or even to below operating costs. Survival is the reality in the offshore industry, where companies are still forced to scrap older and less competitive vessels, sell equipment out of market, lay up boats, or restructure and consolidate. The North Sea region was one of the few markets showing some positivity. Here, term fixture activity has been significantly higher compared with the earlier part of The spot market has also provided good returns for vessel owners, with the summer proving to be a particularly strong time for the owners of both Anchor Handling Tug Support (AHTS) vessels and Platform Support Vessels (PSVs). In general, the third quarter of 2017 has proved to be a very busy period, with the number of vessels laid up being reduced as a result. Most companies have seen this busy period as an effect of seasonal demand, whilst others have cautiously predicted that the market might have finally reached the bottom of the current downturn in the region. However, despite the recent rise in term fixture activity, and the regular new term requirements being released into the market, most vessel owners remain pessimistic about the near term future of the sector. The low oil price, vessel oversupply and number of laid up vessels are still seen as the major challenges to overcome in the months ahead. In North America, Canada has largely remained steady through the downturn and experienced an increase in offshore vessel demand at the end of the summer. Pessimism reigns in the US Gulf of Mexico, which continues to suffer through one of the worst industry downturns in history. Few new projects are being sanctioned and offshore experts do not expect oil prices to turn around anytime soon. Lack of activity and a huge oversupply have driven day rates below operating costs for both deep and shallow-water vessels. In the Asia-Pacific region, India remains the bright spot for offshore activity mostly due to ONGC. In other sectors, there were a few contract extensions and some work opportunities linked to drilling permit and rig tendering, but, in general, offshore vessel companies continue to report losses with the prolonged slump in the oil and gas sector. Page 30 November 2017 IHS Markit