Session 2 of the two-day Offshore Support Journal Middle East Virtual Conference focused on Opportunities in shallow water, emerging and alternative markets
Rystad Energy vice-president, energy service research Oddmund Føre surveyed the market, highlighting the global pandemic’s effect on the fall in oil prices but noting that oil prices are expected to make a comeback in the near future.
Vessel day demand has taken a hit and while both rig jobs and platform jobs have declined, the latter has been more stable. FID activity across segments has also collapsed in 2020 following delays and cancellations in projects, but Rystad’s estimates show this will pick up by 2022.
There is a global demand for floaters with the Middle East expected to increase its market share by 2025. Mr Føre said the rig market recovery that began in 2019 was interrupted by Covid-19. Rystad expects the vessel market will pick up as rigs slowly coming back to work. As Mr Føre noted “essentially, a two-year decline in the market.”
Current trends in the market show the prominence of offshore wind. By way of an example, Mr Føre contrasted the high stock prices of Ørsted – a company with a significant offshore wind portfolio – with the falling price of BP stock. The oil major made its first foray into the offshore wind segment in September when it signed on to a strategic partnership with Equinor.
Rystad expects the offshore wind capex to exceed that of upstream oil and gas by 2022 as wind projects get bigger and more ambitious. This, they said, will in turn drive the demand for large vessels like foundation and turbine installation vessels as Asia and the Americas aggressively expand wind energy production with China leading the pack.
The Middle East Gulf is expected to become an offshore decommissioning hotspot and a multi-billion dollar market. At present, 700 offshore facilities await decommissioning and by 2038 the figure is expected to reach 1,000 structures and 300 wells in the Gulf alone. While lower oil prices may drive some companies to decommission earlier, Mr Føre said companies may also wait for the oil price to rise again to take on these activities.
Devine & Severova partner Ana Severova laid out the regulatory landscape for decommissioning. Liabilties are an area of tension between companies and governments, she said. Contractors will expect to cap their liabilities, and there may be uncertainties around which party carries out decommissioning activities.
Ms Severova said oil companies in these jurisdictions have to comply with local environmental laws but apart from guidelines related to the abandonment of wells, such decommissioning regulations are often lacking. She said older host government contracts may lack decommissioning provisions especially in Middle Eastern jurisdictions compared to more ‘mature’ fields in Norway or the UK.
A more robust regulatory regime could help parties settle these issues better. Ms Severova cited the example of BP’s sale of its North Sea assets to EnQuest in 2017. BP kept the liabilities related to the existing infrastructure but EnQuest agreed to defer payment to BP tied to the decommissioning costs.
While few decommissioning projects have been conducted in the Middle East and there is less accumulated experience there, Ms Severova said global oil companies are expected to blend global knowledge with local skills and capabilities. Engagement with all stakeholders (governments, interest groups/NGOs) is key to this. More regulation could promote certainty and help small and medium-sized companies enter the market.
While Middle East Governments are not expected to let companies walk away from liabilities, Ms Severova said decisions usually happen on a case-by-case basis. Fields have been repurposed with new owners taking on liabilities. Where fields have reached the end of their life, separate agreements have been settled on. There is however, little transparent data from governments regarding costs to speculate further, she said.
Those seeking decommissioning projects will seek out secure and cost-effective methods with minimal risk of reputational harm. Vessel owners with prior experience and good safety records will be at an advantage. Owners may also seek out partnerships with engineering, advisory, tech firms and local service providers to help conduct operations.
McDermott Middle East director for marine operations Douglas Korth spoke about opportunities in the subsea vessels’ segment. Over the next five years, McDermott projects the majority of its work will be driven by diving and cable laying activities.
Several projects have been delayed/deferred because of the pandemic so work is expected to peak by 2023, dropping off by 2025. The Middle East is expected to account for more than 70% of work.
Cable laying work time requirements are getting longer with projects growing larger. The average campaign is about 60 days while average reel capacities are close to 2,000-3,000 tonnes. Diving and subsea work is predominantly driven by saturation diving and campaigns are up to 85 days on average, he said.
The bids McDermott is now receiving have a shorter lifecycle, however, something Mr Korth attributed to the pandemic’s effect. Demand is being driven by shorter project lifecycles which call for more advanced vessels.
Mr Korth said the company is mandating more twin bell diving support vessels, seeing more demand for higher crane capacity and DP2 systems. There are however a limited number of vessels meeting this criteria and there are age restrictions on diving type and DP vessels.
This is driving the use of more light construction vessels that can be repurposed and operational uptimes. Challenges also come from an ageing fleet coupled with the shortage in the availability of newer vessels, especially in a specific region in addition to the need to be cost effective. McDermott is seeking longer charters across portfolios to secure vessels and value, frame agreements and finally fleet replacement and optimisation.
Other challenges come from the regulatory environment, Mr Korth said. McDermott uses outside labour to work on vessels but local labour requirements mandate shorter rotation schedules which increases costs.
“So we are in a complex scenario where we are driven to higher costs but at the same time under pressure to keep costs down and those two things are not quite compatible at this particular moment,” he said.
Sessions earlier in the Offshore Support Journal, Middle East virtual conference on 9 November covered the impact from Covid-19 on the offshore oil and gas sector; a regional round-up of the key challenges and project delays and a session on potential opportunities from offshore renewables; and decommissioning oilfield infrastructure in the Middle East.
The virtual conference continues on 10 November with sessions expanding on the opportunities, on sustainability, environmental compliance and technology innovations.