Offshore EPC in a Volatile Market: Executive Strategies for High-Risk Maritime Projects

There's a great deal of pressure on schedules, geopolitical risk, and extreme capital exposure in offshore maritime projects. In any floating production storage and offloading vessel, offshore wind substation or a greenfield port infrastructure project, there's one thing that remains true: there's almost no room for error. 

Executives and project sponsors leading the way in these efforts discover that the quality of EPC project lifecycle management can make the difference in the project's profitability but, perhaps more importantly, in the survival of the organization in the now more demanding marketplace. 

73%

According to McKinsey Global Institute's analysis of the top capital projects across key energy infrastructure sectors, offshore capital projects have higher cost overruns. 

$1.8T 

In total investments in global offshore energy to 2030 including investments in oil & gas, offshore wind and maritime logistics. 

40% 

Of the EPC delays, 20% were attributed to procurement issues and only 15% were attributed to the contractors being misaligned, according to the IPA benchmarking data. 

Why Not the Other Way Around Executives Who Fail Offshore EPC Projects 

Human error is always the root cause of the dominant narrative following an offshore project's failure: poor decision making, weak leadership, or poor engineering. A more precise diagnosis would be: A complexity that only conventional project structures cannot keep up. 

Take the scope into account. A project of offshore platform integration can include hundreds of contractors, across five or more jurisdictions, multiple procurement paths, both in Asia, Europe and the Gulf, and legal frameworks changing during the job. If a project management consultant is hired after the project is in trouble, he will always find the "bug" in one of the initial steps of the project: scope definition, contractor selection, risk allocation, and interface management protocols. 

The Case for Turnkey EPC Solutions in Volatile Market Conditions 

In a stable commodity and regulatory environment, a sophisticated project owner may be more willing to adopt disaggregated contracting, which involves splitting up the engineering, procurement, and construction work into three separate contracts to gain the most cost leverage. That leverage turns into a burden in the times of volatile markets. 

Turnkey EPC solutions achieve a risk shift of a different nature for the owner. If a single contractor is responsible for the entire scope of EPC, from the FEED to the mechanical completion, the risk of interface associated with the EPC workstreams is internalized and not put into the owner's project management office. Program risks are now fixed. But most importantly, the owner's executive team is not constantly devoting leadership time to the daily firefighting required on disaggregated projects. 

The Four Pressure Points Every Offshore EPC Executive Must Control 

Throughout the EPC project lifecycle, in offshore maritime projects, there are four pressure points that always occur and are high impact and decisive in either the project succeeds or fails: 

1. Front-End Loading (FEL) discipline 

The offshore industry has long recognized that the FEL (final investment decision) phase, before scope is defined, contracting strategies determined, and plans for execution are established, is key to the project's outcome. However, under commercial pressure, FEL is often squashed. EPC project management consultants who have the ability to do offline benchmarking can calculate the price of that compression prior to it becoming irreversible. 

2. Procurement chain visibility 

Outside of the pandemic and with high tariffs in place, procurement is the one thing that is the biggest risk on any offshore EPC schedule. For offshore applications, such as subsea manifolds, marine cranes and dynamic positioning systems, the lead times for long-lead equipment are more than 24 months. Projects using a procurement approach that assumes the market of pre-2020 are deliberately underprepared. 

3. Regulatory & Environmental Interactions 

Offshore maritime projects are becoming increasingly complex because they are subject to several regulatory regimes: flag state regulations, coastal state permitting, international maritime conventions, and for offshore wind, new national grid connection regimes. All interfaces are scheduled for risks. High-performing teams in the project arena behave proactively in their interactions with regulators rather than in a reactive way. 

4. Owner's team skills and stability 

Even the best EPC contractor cannot replace the value of an experienced and stable owner’s team. One of the most unrecognized, yet frequent reasons for project failure is the turnover of personnel in the owner's project leadership, which is a common issue in industries like construction and energy, where there is a high demand for skilled workers. Executive responsibility to structure continuity (not capability). 

What can be learned from the adjacent sector? 

Offshore maritime EPC is not an entity. It is creating an emerging common pool of project execution knowledge for the sectors it crosses such as oil and gas, offshore wind, marine data center infrastructure, and port logistics that maritime leaders can and should learn from. 

Fixed-bottom and floating wind turbine installations have been tested like never before in offshore wind, with a rapid scale-up of both turbine and floating foundation types. Lessons learned in this area are applicable to offshore oil and gas brownfield projects where marine operations are also pivotal to schedule performance, including lessons around marine logistics sequencing, vessel availability risk and grid connection interface management. 

As the subsea data center industry remains in its infancy and becomes increasingly capital-intensive, project management for developing EPC frameworks continues to draw heavily from offshore oil and gas practices while adapting to more aggressive timelines. Structural advantages will accrue executives who interact with it over those who do so as part of sectoral siloes, and the cross-pollination of execution models is increasing across these sectors. 

What High-Performing Offshore EPC Leaders Do Differently 

The executives who have the success of delivering offshore maritime projects in a challenging environment are doing so because they are behaving in a certain way that sets them apart from other executives. They employ project management consultants for the EPC project and not generic project consultants from elsewhere. They see the EPC project lifecycle as more than just a technical project. They set up clear accountability structures prior to the start of the contracts, not when the first schedule slip is issued. 

But critically they understand that, in a capital project involving offshore operations, the price of special expertise is never the highest item on the risk register. It's lack of energy almost always comes at a price. 

Don't expect to do things by trial and error on volatile markets. They pay for being prepared, disciplined in terms of structure, and having the sense to apply the most appropriate expertise to the right time and place within the project lifecycle. 

Looking to strengthen Your EPC Project Lifecycle? 

Book a consultation with Alga Processing LLC for expert service during the entire EPC project lifecycle, from front-end loading to commissioning. Our team has extensive offshore and maritime EPC experience to assist capital project leaders in high stakes, complex environments. 

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