Experts discussed supply side problems as well as bright spots in the region at Riviera’s Offshore Support Journal, Middle East Virtual Conference
Synergy Offshore CEO Fazel A Fazelbhoy and Westwood Global Energy Head of Offshore Thom Payne took on market consolidation, shale, balancing balance sheets, debt-equity swaps and the profound impact of current events in the conference’s opening session.
“Boy, what a difference nine months makes,” Mr Fazelbhoy said. “When I spoke at the Annual OSJ Conference in London this year, the word Covid was mentioned just once. Now, the word Covid has completely overwhelmed us and upended our universe.”
Looking at activity and opportunities in the Middle East Gulf region, Mr Fazelbhoy said he saw the market suffering from the “double whammy” of Covid and the oil price collapse but that the Middle East remained a “warm bed” of activity for ongoing projects.
However, Covid has also delayed spending in the UAE for some oil and gas expansion projects. in Saudi Arabia, large offshore projects have been delayed, too, as have projects in Kuwait and Bahrain, although Qatar remains less impacted than other countries in the region.
“Qatar remains a robust market for the OSV fleet,” he said.
“First of all, Qatar, has had relatively no cancellations or any major postponements, and that remains a fairly robust market. And I think whoever’s there already and got themselves settled are poised to do well or at least do consistently. UAE has a US$130Bn spend plan for the next five years – which is about roughly US$26Bn per year. This has been delayed – shifted to the right – so that’s reason for optimism. And, likewise, Saudi Arabia has US$55Bn per annum based on a US$330Bn, five-year plan. These are very big numbers, and I’m sure we can all live happily ever after within that, if they actually get spent in that manner,” he said.
But supply side issues are on the rise – even off the back of 2020’s double-whammy, Mr Fazelbhoy said.
“The problem is not just the price of oil, the problem is also the supply side that’s becoming a big issue. Today, the problem is that all these [Middle Eastern] countries are facing quota cuts. What’s the point of spending that much money to build new capacity when you can’t even produce what you’ve got?” he asked.
“You think about Biden’s presidency and then you think about maybe softening on Iran and maybe Venezuela – and more oil comes back into the market – will the OPEC+ coalition hold? Because there will be more supply, maybe unregulated supply from non-friendly parties – could that raise some real concerns as to how Saudi and Russia could control supply, control the market?”
Still, utilisation figures remain relatively high in the region, as Mr Fazelbhoy presented, showing 70-75% of active (non-laid-up) tonnage utilised, with the market approaching 85% effective utilisation.
Ultimately, Mr Fazelbhoy said his suggestion would be to “delete” 2020 and Covid from the record books.
Mr Payne’s assessment painted a similar review of 2020, along with “an increasingly uncertain outlook” for crude prices that “will be determined by supply-side factors”. However, he said 2021 should see a quick rebound in final investment decisions (FIDs) led by national oil companies investing in the Middle East.
He pointed out the important difference in investment coming from national oil companies and the glaring absence of some of the larger IOCs who were investing in 2019 but that have yet to invest for 2021.
Scrappage, too, has slowed markedly over the last several quarters, bloating the laid-up vessel fleet by a further 10% and potentially weighing down total utilisation numbers through 2024, as well as Westwood Global’s five-year supply-demand outlook.
In terms of bright spots, Mr Payne shared the view that large, nation-state-led projects held hope for the regional market, in spite of an almost impenetrable fog in oil price crystal balls.
“We’re having to have internal debates by the week, by the month – looking at Libya, looking at the impact of the lockdowns,” he said.
“The Middle East demand side is in for some good times over the next few years when you look at the volume of these massive projects that are going to get sanctioned, realistically, over the next 18 months – huge volumes of pipes, cables, platforms, and, as Fazel says, civil construction works as well that will need marine support.”
Mr Fazelbhoy and Mr Payne are just two of the many high-powered presenters at Offshore Support Journal, Middle East Virtual Conference, 9-10 November. See the full programme, and book here.