With about 1,400 OSVs laid up, charter prospects tight and rates low, owners are considering targeted investments in conversions and upgrades to increase vessel utilisation
As the charter prospects and asset values for laid-up offshore support vessels (OSVs) remain depressed, vessel owners are faced with a host of difficult questions. “How can I increase my fleet’s utilisation? What technologies can I invest in to enhance my vessel, win a charter and generate ROI? Should I convert my vessel for another market?” There are no easy answers.
Technologies are changing rapidly, particularly in propulsion and alternative fuels, while the decline in long-term charters poses questions about the merits of making substantial capital investments.
“Hybridisation is growing the market for modifications and minor conversions of OSVs,” DNV Maritime segment director for OSVs and special ships Arnstein Eknes tells Offshore Support Journal. “But there’s a lot of other development happening, such as pilot projects for hydrogen- and ammonia-fuelled vessels.
“Overall, there’s a demand for more competitive tonnage that’s low on emissions, low on fuel consumption and high on operability, such as the ability to stay on station in challenging circumstances like big waves.”
Another important consideration is that the holy grail of offshore charging for hybrid-powered vessels is just around the corner, possibly as soon as 2022. It is a technology that will greatly enhance the attraction of electrical power.
“There’s a demand for more competitive tonnage that’s low on emissions, low on fuel consumption and high on operability”
Meantime, there is still a massive overhang of laid-up vessels. During the webinar, Offshore Support Vessels – A Unique Global Outlook, Braemar ACM Shipbroking and Westwood Global Energy reported 1,640 OSVs were laid up as of Q3 2020. About 1,400 vessels are currently laid up, following the reaction of 200 vessels in Q1 2021 – a sign of strengthening offshore oil and gas activity – but total utilisation levels ‘improved’ to just 54%. Additionally, demolition of older vessels remains low. As of May YTD, 28 OSVs had been scrapped, as compared to 20 and 56 during the same period in 2020 and 2019, respectively, according to VesselsValue.
“It’s a big challenge to know what to do with laid-up vessels,” explains Mr Eknes.
And owners report that particularly threatened species include platform supply vessels (PSVs), anchor handlers and vessels designed for harsh environments such as deep-water fields, the latter because the exploration industry is producing all the oil and gas it wants with fewer ships.
As charterers rein in the carbon footprint of their offshore development operations, does Eidesvik Offshore’s conversion of the 17-year-old Viking Energy point the way in terms of technology? “It’s probably our most complex project,” Eidesvik Offshore vice-president of technology and development Vermund Hjelland tells OSJ. Although it is still in the planning phase, a carbon-free ammonia-fuelled hydrogen fuel cell will be installed in the vessel by 2024, replacing the current hybrid-powered system. With 2 MW of power, Viking Energy will become the world’s first supply vessel able to sail long distances without greenhouse gas (GHG) emissions.
The conversion is underpinned by a five-year charter agreement from Equinor, which wants to cut its GHG emissions by 40% by 2030 and have net zero emissions by 2050.
According to the project plans, ammonia will meet 60 to 70% of the power requirement on board for a test period of one year. Not limited to burning ammonia, the multi-fuel Viking Energy will still operate on LNG as fuel, and tap into battery power, too.
The costly project – €22.65M (US$27M) – has several partners, including Wärtsilä (which is providing the power technology and ammonia distribution), fuel-cell group Prototech and NCE Maritime CleanTech. With OSV charterers demanding cleaner-sailing vessels, this is a project they will be watching.
From PSV to fish feeder
Some OSVs are leaving the offshore energy market altogether for ‘greener’ seas. One such market is the aquaculture industry, which requires highly specific technologies. In late 2020, Norwegian operator Eidsvaag took delivery of fish feed carrier Eidsvaag Opal, a former PSV that was converted by Damen Ship Repair Amsterdam. A major project, the eight-year-old vessel was extended by five metres after the hull was cut in two and new sections inserted, requiring 875 tonnes of steel for the conversion.
“There are very few owners in the position to take on the cost of an upgrade for the spot market”
Integral to the conversion was a widening of the vessel through a series of side boxes that provide extra stability and increased cargo capacity, allowing the transport of 2,800 tonnes of fish feed.
Much of the current orderbook for shipyards though is for updates and overhauls, rather than full-scale conversions, to ensure that OSVs can continue to operate in the same market segments. As Mr Eknes underlines, it is all about improving a vessel’s operability.
When Allseas’ deep-water pipe-layer Solitaire, one of the biggest of its kind, came up for an overhaul in 2020, the main concern was its 10 giant underwater mountable thrusters, each with a power output of 5,500 kW and weighing 50 tonnes. Their reliability is critical.
“If operations need to be suspended, the pipeline has to be abandoned and recovered later,” explains Mathieu van der Krabben, Wartsila Netherland’s project manager for the work. “So, for operational reasons and to maintain safety at all times, it is essential that the thrusters can be relied on 100%.” The 397-m Solitaire went back into the water in early 2021 and is currently at work off Mozambique.
“There are very few owners in the position to take on the cost of an upgrade for the spot market because rates have fallen so low,” says Mr Eknes. “But they might be prepared to do so for a long-term charter of several years. The more multi-purpose an OSV, the wider its market reach, but it has to be sufficiently effective for the purpose.”
In this fraught debate the price of a conversion obviously looms large. As Mr Eknes explains, adding new functions, such as walk-to-work (W2W) capability, can improve the types of charters a vessel can compete for, but they must be balanced against the conversion costs. “Obviously, the conversion costs depend very much on where you start from,” he says.
Three reasons make PSVs prime candidates for conversion, according to Ulstein International chief designer Øyvind Gjerde Kamsvåg. Speaking at Riviera Maritime Media’s Annual Offshore Support Journal Virtual Conference & Exhibition held in March, Mr Kamsvåg cited size, capability and availability. He said a PSV is “a flexible platform” that can be converted for other service at “a moderate cost.” Based on its market analysis, Ulstein International expects demand for W2W vessels, cable-layers and survey vessels, as well as for crab-catchers, factory stern trawlers and service vessels.
Owners will have to make up their minds fairly soon. “But we need to work together on the whole package – financing, investors, the entire value chain,” points out Mr Eknes. “There are opportunities out there right now. It just has to be done right.”