China Covid Policies Create Headache for Petrobras

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China’s Covid-19 travel restrictions have turned into a major headache for Brazilian state oil firm Petrobras’ offshore production unit supply chain, a company official told Energy Intelligence.

Chinese travel restrictions have impacted the schedules for the Guanabara (Mero-1) and Carioca (Sepia) floating production, storage and offloading (FPSO) units, as well as some components for the Sepetiba FPSO (Mero-2) project, Joao Henrique Rittershaussen, Petrobras' production development director, said on the sidelines of the World Petroleum Congress in Houston.

“The concern we have is about the [Covid-19] quarantine time in China,” he said. Employees coming to the shipyards from outside the country are forced to isolate for up to a month, and China also makes visas very difficult to get, according to Rittershaussen, with little future visibility. “It has a big impact on our planning.”

Rittershaussen said the Guanabara unit would be moved to Dubai for final commissioning because it was much easier for outside employees to gain access to the construction project there.

The start date for the Guanabara FPSO slipped into next year from its initial target in 2021, according to Petrobras' latest strategic plan, while the Carioca came on line in August. The Sepetiba FPSO is still planned for start-up in 2023.

For future contracts, the company will keep its options open, Rittershaussen said, although he declined to specify what those alternatives may be.

“We are analyzing what will happen in China in order to decide the strategy for the new bids,” he said.

Petrobras' list of prequalified engineering, procurement and construction (EPC) firms did not include Chinese companies, Rittershaussen said, although some subcontracting was still possible there.

Petrobras has some 15 FPSO projects in the works, focused primarily on exploiting its low-cost pre-salt resources to boost the company's production from its current 2.1 million barrels per day to 2.6 million b/d in 2026.

Covid Conundrum

Asia has been a powerhouse for the affordable construction of offshore production units. Shipyards in South Korea and Singapore have long track records when it comes to building FPSOs, and China has emerged in recent years as an especially competitive place to build the offshore units.

Relocating FPSO construction to Asia was seen as a major step in getting Petrobras FPSO projects back on track in the mid-2010s. In prior years, a huge push to bolster local content and build out domestic shipyards was abandoned after encountering huge bottlenecks and cost overruns.

But the Covid-19 pandemic has complicated that reliance on an Asian construction base, with unexpected shutdowns due to ill employees and regional policies that sharply restrict travel.

Petrobras is also not the only large oil producer to deal with Covid-19 delays in Asian shipyards. Norwegian major Equinor blamed travel difficulties, cost overruns and weld quality problems for major construction delays at the Johan Castberg project in Singapore, and some work on the project was reallocated to a shipyard in Norway.

“The yard in Singapore has been shut down for long periods, and still has reduced access to manpower due to entry restrictions associated with Covid-19,” Equinor said in a statement.

Shifting Currents

Large investment banks have been under intensifying social pressure to reduce or end the financing of oil and natural gas operations. Rittershaussen suggested energy investments may face some new obstacles in the current climate, but that so far those obstacles haven’t become prohibitive.

“It seems that there are restrictions,” said Rittershaussen. “But we cannot say today that we’re not able to get financing to lease the units. It’s more difficult, but it’s not impossible.”

Petrobras recently signed a pair of letters of intent for new FPSO deals: One with energy infrastructure firm Yinson for the charter of the Parque das Baleias FPSO, and another with deepwater operator SBM Offshore for the charter of the Alexandre de Gusmao FPSO for the Mero-4 project.

Corporate Strategy , NOCs, Upstream Projects, Deepwater, Conventional Oil and Gas, Pre-Salt, Offshore Oil and Gas
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