With any improvement in offshore oil and gas prospects in the US Gulf of Mexico at least two years away, US OSV owners are looking for fresh business in offshore wind
After an upbeat start to 2020, prospects for any improvement in the US Gulf of Mexico (US GOM) OSV sector may be at least two years away, following the economic and energy demand destruction caused by the global pandemic, says a leading offshore analyst.
“As the offshore market entered 2020, there was an increase in optimism and a sense that the worst was behind us,” said VesselsValue head of offshore Robert Day. “However, Covid-19 decimated the world economy and sent the economy, and critically the offshore industry, into a double dip downturn. Improvement in the US GOM looks a long way off; the focus for owners right now is to survive this new and challenging environment.”
Mr Day believes that the ‘old market fundamentals’ that the OSV market faced prior to the pandemic still need to be addressed.
“The US GOM is still drastically oversupplied, Covid-19 has amplified this, with too many boats, chasing even less work than at the start of the year! The effects of the last 10 months will be felt for the next 18 months to two years, so we may begin seeing a sustained and quantifiable improvement in about 2022-2023.”
There are 576 OSVs, 142 offshore construction vessels (OCVs) and 53 mobile offshore drilling units (MODUs) active in the US GOM, representing utilisation rates of 59%, 60% and 78%, according to a September report by VesselsValue. The utilisation levels for OSVs and OCVs are the worst of any major regional offshore oil and gas market. There are 407 OSVs, 95 OCVs and 15 MODUs laid up.
Privately held Edison Chouest Offshore (ECO) has the largest number of offshore vessels globally, with some 211, valued in excess of US$1.2Bn. Of those, some 148, or 70%, are operating in the US GOM, says VesselsValue.
Among the other major US-based OSV owners, Tidewater, GulfMark Offshore, Harvey Gulf International Marine (HGIM) and now Hornbeck Offshore Services (HOS) have all successfully emerged from Chapter 11 bankruptcy on stronger financial footings.
Given the current depressed conditions in the offshore oil and gas sector and the effects of the global pandemic on the economy and energy, more US-based OSV owners might have to undergo restructuring.
“Covid-19 has applied further pressure to what were and are already fragile owners,” said Mr Day. “If we see a continued poor and challenging market, it is likely other companies will be forced to look to Chapter 11 as a solution.”
“The US maritime industry is fully capable of satisfying the needs of the offshore wind industry”
Added Mr Day: “Also, the companies that have yet to go through Chapter 11 restructuring are competing with owners such as Tidewater, HGIM and Hornbeck, who have come out the other side leaner and debt free, putting the non-chapter 11 companies at a significant disadvantage.”
Adding to the woes of the US GOM oil and gas market has been a particularly nasty hurricane season. According to daily estimates from the US Bureau of Safety and Environmental Enforcement (BSEE), Hurricane Laura – which hit at the end of August – reduced crude oil production in the US GOM by an estimated 14.4M barrels over a span of 15 days. This is the most of any hurricane since the combined effect of Hurricanes Gustav and Ike in 2008, according to the US Energy Information Administration.
At its peak, Hurricane Laura forced the evacuation of all 16 dynamically positioned drilling rigs and 11 of the 12 non-dynamically positioned drilling rigs which are moored to the seafloor, and nearly half of the 643 offshore production platforms operating in the US GOM.
Opportunities in US offshore wind
Faced with tough market conditions in the traditional offshore oil and gas sector, US OSV owners are turning their attention to other markets, namely renewables. While not a panacea, US offshore wind could well boost prospects for beleaguered US OSV owners. A dominant presence in the US offshore oil and gas industry, ECO has its sights set on the US offshore renewables market. ECO, Ørsted and Eversource have agreed to a long-term charter for the provision of the first US-flagged, Jones Act-compliant service operation vessel (SOV).
Plans call for the 79-m SOV to be engineered, built and operated by ECO as an integral part of the operation and maintenance of the Revolution Wind, South Fork Wind and Sunrise Wind offshore windfarms on the US northeast coast.
SOVs are used during the operation and maintenance (O&M) phase of the projects, serving as a base for offshore wind technicians.
ECO described the SOV as “a special-purpose design with a focus on passenger comfort and safety, enhanced manoeuvrability and reduced ship motions, extended offshore endurance and reduced emissions.”
ECO says that in keeping with the environmental goals of the offshore wind industry, the SOV will be diesel-electric, with a proprietary ECO variable frequency drive (VFD), meeting US EPA Tier 4 emission standards and reducing greenhouse gas emissions.
When the charter agreement was announced, ECO president Gary Chouest pointed out that its in-house engineering, construction and operational capabilities made it “unique” in the US offshore marine vessel industry.” ECO has US shipyards in Florida, Mississippi and Louisiana that will participate in the construction of the SOV.
Offshore Marine Service Association president Aaron Smith greeted the announcement by ECO, Ørsted and Eversource with enthusiasm.
“This is proof that offshore wind will be an economic driver for the US maritime industry and that the US maritime industry is fully capable of satisfying the needs of the offshore wind industry,” said Mr Smith.
Mr Day noted that the US offshore windfarm market does present an alternative revenue opportunity for US-based OSV owners. “European OSV owners have utilised the same model to great success and found offshore wind a steady income when the oil and gas work dried up (driven by the first oil price downturn in 2014).”
Mr Day cautioned, however, that there are “some major differences across the pond in the US. For example,” he said, “the US windfarm market has always had serious political and legislative attention which in some cases have held it back. If these hurdles (or others) can be overcome and offshore wind energy is developed to the same extent as in Europe, we should begin to see the effects filter through to vessel owners.”
“Covid-19 has applied further pressure to already fragile owners”
While traditional oil and gas vessels can, and do, service the offshore windfarm market, Mr Day pointed out that new vessels such as ECO’s SOV and others, such as crew transfer vessels (CTVs) and wind turbine installation vessels (WTIVs), will be needed to service the nascent US industry. There are two CTVs in operation, both built by Rhode Island-based shipyard Blount Boats and owned by Atlantic Wind Transfers, with two others under construction for Reinauer Transportation’s offshore vessel arm, WindServe Marine. Atlantic Wind Transfers also has another CTV in the works.
“The US market is already showing signs of these vessels moving across from the drawing boards of European yards to the US Jones-Act-compliant yards,” he said. He noted that beyond the provision of the first-ever US-flagged Jones Act-compliant SOV by ECO, US utility Dominion Energy has started the process for the construction of a Jones Act-compliant offshore wind turbine installation vessel (WTIV) to support the US offshore wind market.
DNV GL maritime business development manager Nick Prokopuk said he believes “offshore wind is set to grow very quickly in the US,” noting “with that growth will come a lot of demand for vessels.”
Mr Prokopuk said: “By 2025, we think there will be a need for up to three SOVs in the US market, but by the end of the decade we think 10 to 12, possibly even more US-flagged SOVs will be required.”
In addition, he said 30 to 50 CTVs could be required to support the US offshore wind industry, along with many other types of vessel.
Concluded Mr Day: “Over the next couple of years, we are going to see a changing landscape within the US Gulf as new opportunities arise within the renewables sector.”
|Top USA OSV Owners by Number of Vessels|
|Company||Number of Vessels||Total Value USD m|
|Edison Chouest Offshore||211||$1,201|
|Hornbeck Offshore Services||62||$465|
|SEACOR Marine Holdings||57||$215|
|Harvey Gulf Marine||52||$368|