Yinson Annual Report 2020

37 Annual Report 2020 How Yinson mitigates this risk: Group strategy (pg 30), Financial Capital (pg 50), Business Development (pg 64), Projects (pg 65), Governance (pg 69), Social & Relationships Capital (pg 102), MD&A (pg 128) How Yinson mitigates this risk: Group strategy (pg 30), Financial Capital (pg 50), MD&A (pg 128) F P S O MA R K E T Overview Risks Opportunities • Discovery of deepwater assets in offshore Africa, Brazil, Mexico and Guyana will be driving the demand for FPSOs. • South America, Africa and Asia constitute more than 75% of the global FPSO market. Brazil is the largest market for FPSOs on a country level. • Petrobras is the single largest operator of FPSO vessels globally with almost 10% of the fleet. Other major oil companies such as BP, Chevron, CNOOC, ENI, Exxon, Shell and Total operate almost 20% of the FPSO fleet, while lease contractors still have a share of approximately 50% of the fleet. • High customer concentration risk. • Project executions may be impacted by financial markets due to Covid-19, causing potential delays. • FPSO projects may be delayed by oil companies. The trend is that this mainly impacts EPC projects, while lease projects continue as planned. • Inability to secure project financing, new projects or deferment in projects amid stiff competition and tightening financing conditions. • Increased demand for FPSOs in Brazil, Africa, Mexico and Guyana. • Increasing demand for FPSOs to support deepwater projects as shallower prospects are exhausted. • Postponement of projects free up capacity in the supply chain which could result in lower cost and shorter delivery times for the projects being executed. Overview Risks Opportunities • Oil and gas remains the largest contributor to the global energy mix. The contribution is expected to grow over the medium term, with demand peaking in 2030. • The breakdown of OPEC+ talks in early-March saw oil prices plunging. However, OPEC+ turned around in April 2020 and agreed to production cuts to stabilise the oil market. • With confinement measures in place in 187 countries due to Covid-19, the International Energy Agency predicted in April 2020 that this year’s global oil demand will fall by 9.3 million barrels a day versus 2019. • Oil is facing weak demand. Predictions in April 2020 are that demand will recover by year-end. However, considering the rapid changes in predictions over the past months, this is uncertain. • Oil price volatility poses a threat to oil companies, especially those with higher production costs. To deal with the reduced revenues, most oil companies will, or already have, introduced significant capex reductions. • The oil shock could curb US shale oil production. This may hasten global supply and demand back to an equilibrium. • Notwithstanding the temporal dip in the oil market, global oil and gas demand is set to grow in the next decade. • Green movement and IMO 2020 could see higher demand for cleaner fuels and fuels with lower sulphur content. O I L A N D G A S MA R K E T