The different components of offshore oil development pose numerous technical challenges and require top-class engineering capabilities. Platforms and production vessels must be able to drill for, produce and process oil and gas in challenging conditions.
These projects operate in water that is thousands of metres deep, often hundreds of kilometres from shore and immediate logistical support. The infrastructure and tools used must be able to survive hurricanes, massive waves, high winds and the corrosive effects of salt water for decades.

The scale and amount of materials needed for these sophisticated mega-engineering projects are huge. The offshore platforms and related infrastructure use large quantities of materials like high-strength corrosion-resistant steel and aluminum alloys, sophisticated industrial plastics, specialty concretes, and electronic equipment designed to withstand extreme conditions.

These materials are used in the pipe systems, engines, structures, cladding and vessels that enable production in deep waters. They must be of top-quality and are expensive to produce. This is usually reflected in initial development costs, called capital costs—essentially the money that must be spent before the very first barrel is produced.

These capital costs can be significant – for some deepwater offshore oil producers like Brazil, Norway and the UK, they can be as much as 50 to 60 per cent of the overall cost of producing a barrel. This means that the costs of materials are a primary determinant in when and how these building projects take place. Key materials are costly even in times of low demand; high demand periods, when many offshore facilities are being developed, can drive these prices even higher.

A surge of activity in Brazil is on the cusp of driving that kind of high-demand, with more than 20 floating production storage and offloading vessels (FPSOs) on order or planned for the country’s prolific offshore region. 15 more new FPSOs have been announced or are planned to start work in Africa by 2025 and new developments in regions like the Falkland Islands and Australia will drive demand even higher. Here in Guyana, there has been some indication that as many as five FPSOs might be active by the mid-2020s.

This demand will also raise costs beyond basic materials, driving a need for other key ingredients like skilled labour, qualified subcontractors, support vessels and helicopters, which will be in high demand as well. In this respect, Guyana has been relatively lucky so far.

Development on the Liza Phase 1 project on the offshore Stabroek Block began during a sharp dip in global deepwater development activity, and consequently, in materials prices. Those are only now starting to increase slowly. The production vessel, Liza Destiny was built during this dip in prices and is already on its way from Singapore’s shipyards after its naming ceremony a few weeks ago.

If all goes according to plan, oil production should begin in early 2020 and Guyana could be taking in tens of billions of US dollars each year by the mid-2020s. More than 5.5 billion barrels of oil equivalent, a common industry measure that also includes natural gas and other petroleum liquids, have been discovered so far.

With the high number of competing FPSO projects that are expected to start soon, it is very important to continue the fast pace of development in offshore Guyana in order to take advantage of low material costs. Future developments like the Liza Phase 2 and the Payara project will depend on the same materials and services as the upcoming Brazil and Africa projects. Prices for these materials look set to continue to rise for the foreseeable future, which means that delays construction could increase material costs and reduce revenues for the Stabroek block partners and the government of Guyana.

The second and third phases of development in the Stabroek block could add as much as 440,000 additional barrels per day of production by the mid-2020s, on top of the 120,000 barrels per day that Liza Phase 1 will produce. Keeping these developments on track could be critical to lower costs and more revenue for Guyana.