Long-term OSV demand tempered by short-term challenges

Fearnley Offshore Supply senior market analyst, Jesper Skjong, forecasts increasing spending on OSVs (on chartering and maintenance) in the Middle East to 2030, after years of under-investment and low charter rates. He says 2024 marked the highest exploration and production expenditure since 2014, “with projections indicating continued growth through the end of the decade.”

He says there is good certainty of vessel spending over the rest of this decade due to the majority of expected upstream projects in the Middle East being already sanctioned; and many of those yet to be given the green light are ready to roll at oil prices at less than US$60/bbl.

Vessel spending in 2024 was just over US$2Bn in the region, up US$1.3Bn on spending in 2020. It is expected to rise to around US$2.7Bn by 2030.

There is expected to be considerable demand growth during the next five years based on known projects, probable sanctioned developments and maintenance requirements.

With the current development pipeline, the region will require more OSVs, including small- and mid-size anchor-handling tug supply (AHTS) and platform supply vessels (PSVs) in both the immediate and medium-term future, says Mr Skjong,

Demand for AHTS has risen from 246 in 2021 to 332 in 2024 and is forecast to rise to 354 by 2030. PSV demand has grown from 102 in 2021 to 130 in 2024 and should climb to 138 within the next five years.

“The outlook is strong, supported by production, and demand will grow running into 2030s,” says Mr Skjong. “We are at historic high levels and continuing to grow, with the Middle East the key driver. There is lack of available supply, so rates have risen, and energy companies are running out of new vessels to charter.”

It is inevitable that owners will order newbuild OSVs to counter this lack of supply or seek second-hand vessels to fill in chartering gaps. Mr Skjong thinks shipyards in the Middle East could be well positioned to provide capacity to build these vessels, as yards in Europe have evolved to build other types of ships and there is little available capacity in Asia.

“There is a case for local building of PSVs in the Middle East as there are opportunities in the region,” he says. However, finance would be required to shipyards and owners and charterers should be prepared to hire newbuilds on long-term charters.

Middle East OSV supply in 2024

 

Country	AHTS	PSV
UAE	246	97
Saudi Arabia	196	62
Iran	109	45
Qatar	54	48
Bahrain	9	8
Oman	8	5
Iraq	5	8
Kuwait	5	8

 

(source: Maritime Strategies International)

There could be business cases as offshore oilfields in the region have lifecycles of several decades, so require supply chain support for the long term. “There will still be offshore production in long run and demand for OSVs,” says Mr Skjong.

Mr Jensen agrees in the need for newbuilds to renew OSV fleets in the Middle East, as the majority operating in the region are 10-15 years old. “We are approaching 37% of PSVs being older than 15 years old. A lot of vessels will age out in the next five years, so we need to see newbuildings,” says Mr Jensen.

Newbuild additions

Some owners in the region are already adding newbuilds to expand their fleets as more chartering opportunities appear. Saudi OSV owner Rawabi Vallianz Offshore Services (RVOS) took delivery of the first three vessels in a series of 10 AHTS vessels being built in Asia with diesel-electric propulsion and shallow draughts. A delivery ceremony for the 64-m AHTS vessel series, Rawabi 209, was held at Jiangmen Hangtong Shipbuilding, in China, on 10 December

Built to ABS class, the vessel is capable of offshore support, towing, anchor handling and fire-fighting. It has an overall length of 64 m, a beam of 16 m, a depth of 6 m, and a design deadweight of 2,500 tonnes.

The second in the series, Rawabi 213, was launched in August at the Shin Yang Shipbuilding facility, while Rawabi 215 was delivered by Jing Jiang Nanyang Shipbuilding in November.

“Rates have risen and energy companies are running out of new vessels to charter”

At the end of August, RVOS added Rawabi 136, a newbuild 48-m standby safety and security vessel, built to Bureau Veritas class by Singapore’s Marin Teknik Shipbuilders. All of these newbuilds fly the Tuvalu flag.

Caspian Offshore Construction expanded its fleet of workboats operating in the Middle East Gulf with the delivery of a shallow-draught vessel in December 2024 from Damen Shipyards.

Caspian Lotus was built to Damen’s Shoalbuster (SBu) 3209 design, with a draught of just 3 m, a bollard pull of 45 tonnes and 80 m2 of deck space. This 32-m vessel has a beam of 9.1 m, a top speed of 11 knots, capacity to store 215 m3 of fuel oil and a winch and deck crane to support operations.

Damen’s practice of building vessels in series for stock meant it was almost completed when the contract with Caspian Offshore Construction was signed in August 2024.

The vessel has been delivered in the UAE ready to support dredging and offshore operations. Its delivery increases the owner’s fleet of vessels and barges to over 50, including 14 operating in the Middle East Gulf.

Abu Dhabi National Offshore Oil Co (ADNOC) took delivery of two catamaran aluminium-hulled diving support vessels (DSVs), designed by Robert Allan Ltd, from Grandweld Shipyards in 2024.

These 24.9-m, 192-gt vessels have a beam of 8 m, a navigational draught of 2 m, tanks to store 8,100 litres of fuel oil and 4,800 litres of potable water. Their propulsion consists of two Baudouin 12M26.3 main engines, 1,030 kW at 2,100 rpm, and Reintjes WVS 430/1 gearboxes driving four-blade conventional propellers. The vessels have specialised equipment to support diving in shallow waters including a decompression chamber, dive air compressors, compressed air and other gas cylinders, hose reels for underwater tools and diver air supply. Diving operations are undertaken on either side of the vessel or on the integrated swim platforms at the stern. There is accommodation for five crew and seven divers and a 6.5-m daughter workboat and a crane with 10 m working radius, situated on top of the deckhouse.

Abu Dhabi Ports subsidiary Noatum Maritime (formerly Safeen) added shallow-draught workboat, Igriz, to its fleet after its construction by Damen Shipyards to a Shoalbuster 2709 design. This 27-m vessel has a 46 m2 deck cargo area, a stern roller, deck crane and a bollard pull of 40.2 tons. Noatum also extended its operations into Mauritius with a dedicated fleet of vessels.

In the UAE, Maritime Craft Services Clyde started operating Damen-built 253-gt MCS Heather 2. This 27-m multipurpose workboat was built to Damen’s Shoalbuster 2711 design with a bollard pull of 40 tonnes, a speed of 11 knots and two Caterpillar 3512-C main engines. Damen fitted an AKC 185 deck crane, a waterfall winch and an NOx reduction system to ensure the vessel is certified to IMO Tier III emissions standards. This vessel also has a deck area of 75 m2, accommodation for seven crew, and fuel oil capacity of 125 m3. 

Newbuild financing

Hybrid asset-corporate structures are emerging as a preferred financing model for OSVs in the Middle East. National Bank of Fujairah is one of the few traditional banks still actively financing OSVs and its head of energy and marine, Bilal Hasan Ashraf, says the organisation favours fleet financing, particularly mergers and acquisitions. It recently supported MAG Offshore’s recent acquisition of 20 vessels from Atlantic Navigation.

There could be more opportunities for purchasing existing fleets as owners, especially in south-east Asia, continue to struggle with legacy issues and paying long-term debts. “This creates a window for lenders to examine these exposures and structure viable solutions,” says Mr Ashraf.

For newbuilds, lenders want to see contracts in place. “With a 10-year loan tenure, charter contracts should cover at least 30% to 50% of the period to ensure viable debt service,” says Mr Ashraf.

Most traditional banks have withdrawn from the sector, particularly international institutions, citing environmental concerns and challenging market dynamics. This vacuum is being filled by new sources of finance, including credit funds, says Alantra vice president for maritime and offshore, Konstantinos Kanellopoulos.

“Initially, credit fund pricing might seem daunting, but the sector’s high profitability means this increased cost of capital remains sustainable,” he says. A byproduct of new sources of financing is the process can take longer.

A recent refinancing of five vessels for an undisclosed regional operator highlighted the extended timelines now required for deal execution. “It took more than seven months, roughly triple the usual period,” says Mr Kanellopoulos. “The key to success was helping new financiers understand market dynamics and securing appropriate legal opinions on termination clauses.”

Typically, lenders are accepting 30-day termination clauses when offset by strong corporate guarantees. The market generally expects three-year minimum charter coverage, though this can be blended across fleet portfolios for rate optimisation.

Saudi Arabian opportunities

In Saudi Arabia there will be decades of offshore operations supported by jack-up drilling rigs and OSVs as the kingdom’s largest fields continue to be produced, redeveloped and optimally managed.

Saudi Arabia holds 17% of the world’s proven oil reserves and 22% of Opec’s proven oil reserves​. It is the world’s third largest oil producer (at around 10M bpd capped by its Opec quota), the largest exporter of crude oil and holds the world’s sixth largest proven natural gas reserves.

However, offshore investment was subdued in 2024, and will be in 2025, by Opec production quotas, oil prices and contractor pricing. In 2022, analysts forecast spending of US$50Bn per annum for 2023 and beyond, with major projects on the Zuluf, Marjan and Berri fields, and at Durra in the neutral zone operated jointly with Kuwait; all to increase output capacity to 13M bpd by 2027. But production quota reductions meant these projects were delayed or postponed as production was kept below 10M bpd, resulting in rebalancing of the rig and OSV market in 2024, says HFW partner, Robert Lawrence.

“Aramco cancelled bid processes for the expansion of two fields – Safaniyah and Manifa,” he says. It also decided to control expansion of Majan, Berri and Zuluf. Operations in 2024 focused on maintaining low production rates and then gradually restoring output to 10.5M bpd by year end. “Some of the expansion projects went on hold and investment was more controlled, resulting in less activity,” he says.

In 2025, there will be a focus on raising production to 10.8 M bpd. “A lot of money instead was invested in ports and terminals requiring vessel support,” says Mr Lawrence. “There is some repositioning into the gas sector, with gas production expected to expand by 60% by 2030.”

There could also be opportunities for OSVs in the offshore renewable energy sector, as Saudi Arabia plans to have its first offshore windfarm in the Arabian Gulf operational by 2027. There could also be work for OSVs in the Red Sea tourism and logistics sectors.

UAE expansion plans

In the UAE, there are multiple opportunities for various types of support vessels, not just for PSVs and AHTS. This market is more varied and segmented, with multiple offshore fields in shallow waters requiring differing services and vessels with diverse capacities and capabilities.

All Energies Services charters many of these different vessels in the UAE and its managing director, Mark Kachouh, anticipates more varied requirements in the coming years, mostly coming from ADNOC. “There are some major projects, including on the very active Zakum, the second largest offshore field worldwide,” he says.

Of the 26 offshore blocks, 67% are in Abu Dhabi, 15% in RAK, 7% in Dubai and another 7% in Sharjah. A majority of fields are in water depths of less than 40 m and less than 50 nautical miles from shore. There are 40 operating jack-up rigs, all but one in Abu Dhabi, and 350 active support vessels in the whole UAE, including tugboats.

Between 2019 and 2023, around US$4.8Bn was spent on offshore engineering, procurement and construction (EPC) projects in the UAE. According to Mr Kachouh, EPC spending is forecast to be US$7.9Bn. The major projects include: US$15Bn on Hail and Ghasha developments; US$3.6Bn on electrification of offshore installations to reduce emissions from diesel generators; US$1.5Bn on the Dalma gas development; and US$550M on the Lower Zakum gas expansion – which is part of a much larger US$2.2Bn project involving installation of 18 fixed platforms.

There are tenders and engineering underway for the US$1.4Bn Umm Shaif gas cap project that requires installation of nine platforms and the US$1.2Bn Umm Shaif LTDP-2 that involves six new platforms.

“OSVs active in the UAE include AHTS, PSVs, landing and utility vessels, crewboats, tugs and barges,” says Mr Kachouh. In 2024, this included 73 tugs, 58 flat-top barges, 49 crewboats, 29 PSVs, 21 AHTS, 19 multipurpose support vessels, 18 anchor-handling tugs, 13 accommodation units and 21 miscellaneous vessels.

“There is a high entry barrier and lack of available assets, resulting in utilisation of 90% or more,” he adds. “It is a dynamic market and a lot of demand, but [there are] high standards as ADNOC has strict requirements, mainly for requirements for tugs, barges and landing vessels. There is huge potential from drilling campaigns and field developments.”

This is particularly for vessels with shallow draughts, such as Multicats and Shoalbusters, to support these development projects. “There is high demand for specialised vessels for logistics, supporting construction of artificial islands and drilling of wells,” says Mr Kachouh. “They need to operate safely to national and international standards and to ADNOC requirements.” There are also a few requirements for AHTS and PSVs, “perhaps 10 to 15 charters going forward,” he adds.

Local content drive

In Qatar, there is a national drive to increase local content, vessel ownership and supply chain logistics as the state-backed energy group, QatarEnergy, develops the next phase of gas and oil projects. Under the Tawteen campaign, a Qatari company should have 51% ownership of any vessels chartered in the country and crewed by Qatari personnel.

“Tawteen is a game-changer. It is a holistic programme to incentivise investors to conduct operations locally in Qatar,” says Sea Horizon Offshore Marine Services chief operating officer, Bab Reijntjes. “It is a new tiered system, supporting small and medium enterprises and focusing on talent. Qatar is open for foreign partnerships. International companies can come in, but local businesses should learn from them.”

Qatar is the global leader in gas production and exports with plans to reach 160M tpa by 2030, with the majority coming from the North field complex and exported as LNG.

There are three stages of further development of the huge gas resources – NFE, NFS and NFW – North field east, south and west with potential EPC capex of US$18Bn in greenfield projects.

“There are more projects coming up to increase this even more,” says Mr Reijntjes, adding there is a need for expansion of port and offshore logistics centre in Ras Laffan, Al Ruwais and Mesaieed, and installation of more than 100 new platforms to 2028.

“A, 83% rise in fixed platforms from 2021 to 2030 has a direct impact on long-term demand on PSVs, AHTS and crewboats,” Mr Reijntjes continues. QatarEnergy plans to drill 80 new wells on NFE and 50 on the NFS project.

Other projects include developments on Bul Hanine, Maydan Mahzan and Idd el Shargi and redevelopment of Al Shaheen. There were US$9Bn of EPC contract awards in 2024, with the main winners being COOEC and McDermott.

“There is high demand for MPSVs, specialised vessels and jack-ups in the next five years,” says Mr Reijntjes. “There is commitment to build more investment and drive the Tawteen programmes forward.”

The OSV market in Qatar is stable and fragmented, with 51 contracted AHTS owned by 16 entities and 14 owners of the 33 PSVs contracted. There are also 16 MPSVs, nine lift-boats, nine maintenance vessels, six diving support vessels and three crewboats with many different owners.

The main owners are Milaha, Britoil Offshore Services, Allianz Marine Services, Tidewater, Bourbon Offshore, GAC, P&O Maritime Logistics and Atlantic Navigation.

“Demand for all types of vessels is rising with the incentives for companies coming to Qatar to support these projects,” says Mr Reijntjes. After 2026, when more production kicks in, there will be a change from an AHTS market to a PSV market and rises in crew and maintenance boats.” He anticipates greater pressure on finding available vessels and on port logistics.