Boom times: will a shortage of OSVs slow southeast Asia’s oil and gas rebound?

A shortage of platform supply vessels (PSVs) could hang over the imminent boom in offshore drilling in the Asia Pacific, as other regions draw away required assets to support their own plans. One such region is Brazil, where Petrobras needs a total of 50 OSVs as it embarks on a big offshore programme.

“Are 50 vessels going to be enough to support all of that?” asked Westwood Global Energy Group’s Thom Payne, head of offshore energy services, during Riviera Maritime Media’s Offshore Support Journal Asia Conference in Singapore in October. Mr Payne was citing in particular the increase in drilling, on top of the extra activity in Suriname and Guyana that is putting pressure on South America’s available OSV fleet.

Simultaneously with the jump in demand, older vessels are coming off the market. As M3 Marine Group shipbroker Mili Verma told delegates, an unknown number of PSVs are being snapped up for conversions into cable layers, fish farm vessels and even for leisure craft, compounding the issue of a shortage of available yards for prospective newbuilds. “This puts a further stress on the supply of these assets,” she said.

Illustrating her point, the PaxOcean Nanindah Mutiara Shipyard in Indonesia was contracted in late 2022 by the country’s telecommunication infrastructure company, Ketrosden Triasmitra, to convert a PSV into a cable layer. The vessel in question is the 2003-built, laid-up Skandi Sotra, which was snapped up from Oslo-listed DOF for around US$3.5M.

Adding to the problem, Ms Verma said, some yards are running into manpower shortages as they battle with huge order books and competition for skilled labour. In early 2023, for example, Seoul eased visa requirements for foreign shipyard workers to allow South Korean shipbuilder Samsung Heavy Industries to hire 41 Indonesian welders.

“When it comes to newbuilds, prospective shipowners face a complex decision-making process”

Always looming high in the fortunes of the OSV sector is the price of oil, which is settling from artificially supported highs, but remaining high enough to boost offshore investment. As Mr Payne explained, there is a disconnect between the physical market and one distorted by price caps: “The oil price should not be at US$100. The structural price should be more in line with the US$70 to US$80 range.” And while shale production is creeping up, he does not expect it to reach pre-pandemic levels anytime soon.

Newbuilds needed

More newbuilds are clearly required, the speakers agreed. But when it comes to newbuilds, prospective shipowners are not only just recovering from years of depressed rates and red ink, but also face a complex decision-making process in a time of transition for the industry. The overriding issues include the type of engine, for instance, whether dual-fuelled with electric back-up. If dual-fuelled, the selection of the alternative fuel is critical and it should take into account the adequacy of the supporting infrastructure and availability of supply for that fuel in the vessel’s intended area of operation. And if electric power is a consideration, there are a wide range of batteries and energy management systems available that add to the complexities.

And then there is the not insignificant issue of where the vessel will be built in the midst of a shortage of yards. “There is very limited yard supply,” Ms Verma explained. “A lot of yards, especially those in Far East Asia, are busy with production of mainline shipping.” At the same time, supply chains for essential equipment have become slow and expensive, leading to extended delays.  

“Lenders often ask about the carbon reduction plan and the various ESG guidelines”

And finally, some shipyards are struggling for adequate financing to fund the renewal of the OSV fleet in the region. “Is there enough shipyard financing available for the shipyards in the OSV sector?” she asked rhetorically.  And when the prospective owner goes to the banks, they face more questions. Lenders increasingly require proof of environmentally suitable credentials because they are under pressure to demonstrate their institution’s sustainable principles.

“Very often the lenders ask about the carbon reduction plan [and] the various ESG guidelines, plans and procedures that the shipowners have in place,” she pointed out. “The lenders themselves have certain key performance indicators to meet, without which the loan cannot go through the committee.”

A central factor in an owner’s decision making is the direction ports are taking on sustainability. In the absence of an obvious single alternative, Singapore’s Maritime and Port Authority (MPA) is moving towards a multi-fuel transition, according to Er Tham Wai Wah, the authority’s chief sustainability officer. “There is considerable uncertainty on which low- or zero-carbon fuel global shipping is adopting,” he told the conference. After a considerable amount of research, all the MPA can say is that ammonia-fuelled, hydrogen-powered vessels will play a critical role along with other green alternatives, such as methanol. Currently, the authority is conducting pilot trials, in tandem with a broad consultation with the industry.