Speculation about the future of the local fabrication industry rose this week on news that TOFCO, the major supplier of offshore fabrication services in the country, had farmed out to a U.S. company some of the construction work it had been hired to do for bpTT’s $2.1 billion Juniper project.
On July 16, both TOFCO and bpTT issued press releases announcing that construction of the jacket and piles for the Juniper platform had been relocated to the Gulf Coast.
Neither bpTT nor TOFCO would confirm the identity of their new supplier, but there have been several press reports that Gulf Island Fabrication, a Houston-based specialist in floating production platforms, has recently won offshore construction work for Trinidad. It is unclear if this is for Juniper or another upcoming Trinidad-based project.
A source close to the story said TOFCO had been forced to make the decision after it lost 97 days through a combination of industrial unrest and an incident last March in which Colombian authorities impounded a Chinese vessel transporting steel and other materials to its Labidco facility in La Brea.
The vessel had been leased by TOFCO’s German supplier and remained docked in Colombian waters for 45 days after authorities found arms and ammunition bound for Cuba. Moreover, contractual obligations require bpTT to produce first gas from Juniper in 2017 or face penalties, so there was no chance that delivery of the topside, jacket and piles could be pushed back.
It was the dire shortage of natural gas facing the country, the potential loss of government revenue, the spectre of penalties and the multiplier effect of each of these factors which led bpTT to accept TOFCO’s recommendation to use an alternate supplier “to preserve the project schedule.” On a project the size and scope of Juniper, there was simply no wiggle room, sources said.
In these circumstances, TOFCO’s decision to outsource appears to make business sense. Yet it is emblematic of broader challenges facing local energy services providers in a low-price environment in which capital projects in all major markets have either been postponed or shelved.
In the case of major offshore fabrication, Korean firms still dominated most topside work up to the middle of 2015. Superior capacity, including in-house engineering and subsidies from the Korean government, have boosted their financial strength and made yards such as Daewoo and Samsung hard to compete with.
TOFCO's waterfront facility at Labidco Estate, La Brea. Photo by Mark Gellineau
In Houston, companies like Seadrill and McDermott International Inc, put out by sustained low oil and gas prices, have reported significant job cuts.
The San Antonio Business Journal reported last month that Gulf Marine Fabricators, which was acquired by Gulf Island Fabrication in 2006, was gearing up to lay off more than 500 energy workers by the end of July.
Facing decreased workloads brought about by low oil prices and stiff competition, these fabrication yards in the U.S., where, incidentally, there are no local content requirements, have been scrambling to fill order books. What they currently lack in number of orders, they make up for in their capacity to handle whatever is thrown at them.
Fabricators on the US Gulf Coast are able to build significantly larger platforms than small yards in locations like Trinidad. These yards boast superior engineering technology, more acreage and skilled labour. Local fabrication, for example, has been hit with a shortage of welders with 6GR certification, according to a source familiar with the Juniper project.
In these circumstances, TOFCO’s decision to outsource appears to make business sense. Yet it is emblematic of broader challenges facing local energy services providers in a low-price environment in which capital projects in all major markets have either been postponed or shelved.
Considering their strategic location relatively close to Trinidad, fabrication yards such as Gulf Island could easily compete for more local projects, especially those with challenges beyond the control of the project owners, as TOFCO’s case proved.
By one gauge of competitiveness, TOFCO has much to be proud of: It has an impressive track record. In the past few years, it has built a total of eight platforms on schedule and within budget at its La Brea yard, five for bpTT alone, all to world-class standards.
A joint venture between Weldfab of Trinidad and Chet Morrison of the U.S., TOFCO won the Juniper contract from among a tough field. Pound-for-pound, the company can compete. But with the loss of vital project days, it simply lacked the bespoke facilities to deliver all three components for Juniper on time.
Another source who requested anonymity provided further insight into why Juniper’s jacket construction had to be moved to Texas.
“The variables between the U.S. and any other country is that the number of men [working on fabrication projects] and the number of days will be lower. But the cost per man-hour will be higher. Strictly speaking, the U.S. yards can do it quicker because of their facilities.”
Sources say fabrication yards are designed for the markets they serve, so it would be interesting to see what adjustments TOFCO makes to existing facilities to be more competitive with deepwater exploration on the horizon.
No doubt, Juniper has been a learning opportunity for the company. TOFCO’s past projects simply do not compare with Juniper.
Its largest topside before Juniper was Poinsettia, a major installation for BG T&T in 2009 weighing 3,600 tonnes in 530 feet of water. By comparison, Juniper’s jacket alone is 5,775 tonnes with the deck coming in at 4,500 tonnes and 3,400 tonnes for the piles, all bound for installation in 360 feet of water, 50 miles off Trinidad’s southeast coast.
A bpTT spokesperson confirmed to EnergyNow that construction of the jacket and piles by the Texas fabricator — the work that TOFCO lost — accounts for 2 percent of Juniper’s overall project costs. This includes both electrical and steel work.
Even as TOFCO proceeds with construction of the Juniper topside at its La Brea plant for delivery in the last quarter of 2016, the message that it’s not business as usual for local energy services companies was echoed by bpTT itself in response to questions from EnergyNow:
“Given the current price environment and the increased focus by operators on capital discipline, there is a global decline in major capital projects and increased pressure on service providers to be more efficient and to deliver services at better costs.
This naturally creates a lot more competition in the services sector across all markets. Trinidad and Tobago therefore needs to be very mindful of this and may need to make adjustments to ensure that its energy services can continue to compete with those of other markets.”
“Whoever is appointed Minister of Energy and Energy Affairs after the September 7 general election,” said Chamber CEO Dax Driver, “will do well to consider TOFCO’s experience before and after Juniper in any policies around local content.”