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Shipbuilding Industry: Offshore FEED Remains Sluggish

Continued sluggish orders at leading offshore engineering player TechnipFMC indicate that offshore oil and gas field development demand has yet to recover. We expect offshore plant orders at Korean shipbuilders to stay tepid for at least one more year.

TechnipFMC 3Q20 review: Orders decline 14.7% y-y

Leading offshore plant engineering player TechnipFMC posted less-than-expected orders for 3Q20, suggesting difficulties for the offshore plant industry.

TechnipFMC recorded 3Q20 sales of US$3.33bn (+5.6% q-q) and OP of US$120mn (OPM of 3.6%). With margins improvement recovery lagging market expectations, the firm’s posting of operating profit was insufficient to make up for the large-scale operating losses (US$3.14bn) it booked for 1Q20.

Having now slid for five consecutive quarters, the firm’s order backlog was held to just US$19.6bn (-18.9% y-y) in 3Q20. With more than eight of its projects having been canceled, the possibility of a recovery in new orders within the next two years appears doubtful.

Offshore plant orders yet to recover: To remain sluggish for at least one more year

TechnipFMC’s situation suggests that Korean shipbuilders are unlikely to see a near-term rise in offshore orders. We note that the energy industry typically conducts a business feasibility assessment regarding demand for marine front-end engineering design (FEED) prior to placing orders with shipbuilders.

The decline in order performance of engineering firms naturally leads to a decrease in the number of projects, a factor which inevitably is to reduce demand for offshore plants. Considering that FEED takes more than one year on average, domestic shipbuilders’ sluggish offshore plant orders are expected to continue for at least one additional year.
Source: Business Korea

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