David Foxwell reflects on the cost of chartering service operations vessels, which rose significantly earlier this year after a period in the doldrums
Purpose-built service operation vessels (SOVs) tend to be employed on long-term charters in the offshore wind industry. With a long-term contract, owners are assured of employment for their vessels. Rates may not be as high as they sometimes are for SOVs in the spot market, but a company can be assured of long-term stability.
These purpose-built vessels have long been complemented by ships taken up from the offshore oil and gas sector. There are many owners of this type of oil and gas ship and most have been only too pleased to trade them in the offshore wind industry in the last 4-5 years because of the severe downturn in the oil market. Many have accepted low charter rates in the offshore wind market just to secure utilisation for their vessels. As a result, some very sophisticated, expensive vessels that are really over-specified for the walk-to-work market have sought employment there.
These subsea vessels typically have plenty of accommodation and a large crane. They are often fitted with an offshore gangway to turn them into walk-to-work vessels but were not purpose-designed for this role. The availability of these vessels from outside the sector has depressed rates for walk-to-work assets in the offshore wind sector. A good recent example of an oil and gas ship now working in offshore wind is Olympic Orion, which recently entered into an agreement with Adwen for six months, working on windfarms in the North Sea and Baltic.
Now, however, after one of the most prolonged downturns in the offshore oil and gas sector, activity there is beginning to pick up again. No-one expects the offshore oil and gas market to surge, but picking up it is, and subsea vessels are finding work in the sector they were designed for. As a result, day rates for vessels that have often found work in the offshore wind sector have jumped and the availability of this kind of vessel in the wind sector is expected to decline.
In fact, brokers tell me that after a prolonged period of flat day rates, rates for larger walk-to-work vessels went through the roof in Q1 and Q2. Until the early part of 2019, rates had been approximately €30,000/day (US$35,000/day) for larger vessels, but they quickly rose to around €60,000 (US$67,000), and €40,000 (US$45,000) for medium size vessels.
Market dynamics means that rates for SOVs could continue to increase in the short-term and in the medium-to-long term. A handful of purpose-built SOVs are about to enter the market, but all are already contracted for long-term work. Acta Marine named its latest vessel, Acta Centaurus on 22 May 2019, Ørsted’s new SOV, Wind of Change, recently arrived in Emden, where it is due to start work in the North Sea and the latest addition to Esvagt’s growing portfolio of service operation vessels for the offshore wind industry was launched in April 2019, but there are not many more being built. That is because owners of this kind of vessel tend to be cautious about ordering newbuilds unless they have a long-term charter for one.
Very, very few oil and gas ships of any type have been ordered in the last 4-5 years so supply is not going to increase as demand picks up in the offshore oil and gas market. Factor in growing demand for SOVs as the offshore wind market grows worldwide and charterers – that is, developers and turbine OEMS such as Siemens Gamesa Renewable Energy and MHI Vestas Offshore Wind – are likely to have to pay more for vessels to support installation and operations and maintenance. After a period of calm, they should expect much more volatility.