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Market for new floating production systems 'frozen'

WASHINGTON: The market for new floating production systems has frozen as a result of the abrupt downturn in the global economy, according to a new study by Washington-based International Maritime Associates (IMA).

Over the past quarter, no orders have been placed for floating production units, marking the first time this has occurred since 1996 when IMA began tracking the floating production sector.

As a result, order backlog for production floaters has dropped 30 percent from the same time last year, according to IMA's analysis. However, IMA concludes the downturn appears temporary and the long term outlook for the production floater sector remains very strong. Long term fundamentals have not changed and energy demand is expected to continue to grow over the next several decades.

In addition, IMA's researchers believe the futures market is indicating that oil will return to a US$70 per barrel level within three years and US$80 per barrel within eight years. While the immediate price of oil impacts cash available for investment, the expected price provides the basis for measuring project merit.

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IMA also notes that deep water development has been constrained by rig availability, but a significant number of new deepwater drilling rigs will be joining the fleet over the next three years. As a result, the number of deep water discoveries will increase, producing a growing requirement for floating production systems.

Solid indication of future prospects is provided by the number of projects at various stages of planning that involve the potential use of a floating production/storage system. In its study, IMA identifies more than 155 projects that involve floating production systems. About one-third of these are at an advanced stage of bidding or final design. All are valid projects that are likely to move forward.

In its new study, IMA considers three market scenarios for oil price recovery over the next 12 to 24 months. Depending on the scenario, orders for 93 to 141 production floaters are anticipated over the next five years.

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