Spending is being boosted by healthier Brent crude oil prices and tightening oil supply, while batteries are becoming increasingly important in securing long-term charters for OSVs
Positive sentiment is returning to the offshore vessel sector, thanks to healthy Brent crude oil prices, tightening oil supply, with engineering, procurement, construction and installation (EPCI) award spending rebounding to its highest level in eight years.
With the world slowly emerging from the cloud of the pandemic and low-priced oil a thing of the past, oil companies have significantly boosted their EPCI spending plans in H1 2021 to an estimated US$23.3Bn – 50% more than all of 2020, according to Westwood Global Energy. The energy analysts see this momentum carrying into the second half, resulting in US$63.1Bn in EPCI contracts being awarded – the highest since 2013.
Westwood Global Energy points out that some of the most buoyant markets are deepwater Latin America, Australian gas and shallow-water Middle East, noting key project awards for Equinor’s Bacalhau and Petrobras’ Buzios 6-8, both offshore Brazil, Qatar Petroleum’s North Field Sustainability project, Santos’ Barossa offshore Australia and NIOC’s Farzad offshore Iran. These projects account for just over 62% of total EPCI value YTD.
“Over the balance of 2021 we expect this momentum to pick up further (assuming an average Brent price of at least US$60/bbl) with an additional $39.8Bn of EPCI value to be formally awarded,” says the energy analyst.
“Assuming oil prices remain above US$60/bbl, this level of investment is expected to be maintained, with an average of US$53.5Bn of EPCI value awarded annually over 2022-25.”
‘Slim pickings’ in North Sea
The North Sea sector tightened in July, with charterers facing limited availability in the anchor-handling tug supply (AHTS) vessel market. Even though active vessel supply levels have dropped to low levels in recent years, owners have struggled to generate adequate levels of utilisation due to the market downturn, notes Norwegian ship broker Seabrokers. That certainly hasn’t been the case in July, notes the ship broker, with both the UK and Norwegian markets “completely sold out” on certain days. “While there have usually been a few vessels available from the southern sector in the Netherlands, it has been slim pickings for charterers.”
Seabrokers says the fixture rates in July were higher than most of 2021, but certainly not as high as they might have been in years past when there were prolonged periods of limited availability. The majority of UK fixtures in July came with rates of £20,000-£45,000 (US$27,615-US$62,133), while most charters in Norway had rates of Nrk235,000-Nrk425,000 (US$27,183-US$49,160).
Average utilisation rates on the North Sea spot market for large AHTS vessels were 66% and 79% for large PSVs, according to Seabrokers.
Based on the number of actively marketed vessels, utilisation rates for the North Sea sector were 88% for OSVs, 93% for offshore construction vessels (OCVs) and 80% for mobile offshore drilling units (MODUs), according to UK ship valuation firm VesselsValue, which bases its assumptions on AIS data. Those utilisation rates are among the most robust in the global offshore vessel sector.
On the Norwegian continental shelf activity remains healthy, despite the Covid-19 pandemic. Equinor declared an option to extend the contract for Solstad’s AHTS vessel Normand Ferking for another year to November 2022. Equinor holds two addition one-year options for the vessel, which has been on contract with Equinor since 2007.
Solstad also won a new two-year firm contract for construction support vessel (CSV) Normand Tonjer that will keep the vessel on hire until October 2023.
Offshore vessel utilisation, by type and region | |||
Region | OSV | OCV | MODU |
Northwest Europe | 88% | 93% | 80% |
Gulf of Mexico | 61% | 59% | 82% |
South America | 83% | 91% | 94% |
Middle East | 84% | 81% | 80% |
West Africa | 67% | 61% | 83% |
Southeast Asia | 73% | 82% | 71% |
Source: VesselsValue/July 2021 Market Report |
Batteries on the rise
Norwegian OSV owners are increasingly investing in battery retrofits to secure long-term charters and support their own and charterers’ decarbonisation goals. Aker BP and partners Eidesvik, Solstad Offshore and Simon Møkster Shipping, for example, will retrofit batteries on three offshore supply vessels operating on long-term contracts, with the long-term goal of reducing emissions from existing supply vessels by 70%. All OSVs under long-term charter for Aker BP will be powered by batteries within a year, says the oil company.
Eidesvik and Aker BP will extend their collaboration with a new project named ‘Retrofit’ that will evaluate additional measures for converting existing supply vessels to low-emissions units. Eidesvik chief executive Jan Fredrik Meling says from a climate and sustainability perspective, the capex and time savings of battery retrofits make them an attractive proposition over newbuildings and recycling old ships.
“We are now working to map available new technologies from a cost-benefit perspective. This is a big task, with several alternatives already on the table. During the next 12 months we hope to have a good basis in place to make decisions on what low-emissions solutions we take forward.”
The Retrofit project aims to capture emissions reductions of 70% or more on selected vessels, making them as climate and environmentally friendly as Eidesvik’s Viking Energy, which will be equipped with an ammonia fuel cell in 2024 as part of the European ShipFC project.
The Aker BP-owned supply vessels NS Orla and NS Frayja, which are managed by Eidesvik, are potential candidates for the green upgrades, in addition to others owned by Eidesvik.
“Having Aker BP on board in the Retrofit project is a big vote of confidence in what we’ve been doing. For me, it is a clear indication that they view us as a competent and innovative partner within low-emissions technologies in this vessel segment,” adds Mr Meling.
Simon Møkster Shipping is undertaking its own hybrid-battery initiatives on three of its PSVs with support from Enova. As outlined by the Norwegian OSV owner, the 2014-built Stril Luna will be fitted with an 896-kWh battery pack from Kongsberg Maritime, with upgraded control and manoeuvring systems by year’s end. The 2011-built Stril Orion, meanwhile, and 2012-built Stril Polar will both be fitted with 994 kWk battery packs from Vard Elektro, along with upgraded control and manoeuvring systems. Stril Orion’s retrofit will be completed by the end of 2021 and Stril Polar by the end of 2022.
All three vessels are already equipped with the option for shore-power connection that will allow them to shut down their engines at the dock or charge their new battery packs. All three PSVs will qualify for DNV’s Battery Power notation upon completion of their retrofit.
“The capex and time savings of battery retrofits make them an attractive proposition over newbuildings and recycling old ships”
Vard Electro will supply its SeaQ Energy Storage System (ESS) for the retrofits for hybrid battery power onboard the two PSVs. Vard Electro will be responsible for the entire project which includes engineering, steel prefabrication, installation, integration, testing, and commissioning.
SeaQ ESS includes modes for peak shaving, spinning reserve and zero emission transit. By using the batteries to absorb and dispense energy through load fluctuations and running the engines at optimal load, significant efficiency improvements in fuel consumption and emissions can be achieved.
Simon Møkster Shipping estimates that hybridisation of these three vessels will achieve annual emissions reductions of between 3,000 and 3,500 tonnes of CO2, corresponding to about 5% of the company’s total emissions from the fleet in 2020.
Solstad Offshore will upgrade the CSV Normand Ocean with a large battery installation for a long-term charter from DeepOcean for subsea inspection, maintenance and repair work in the North Sea towards the end of 2023. An option could extend the charter to the end of 2024.
“Upgrading the vessel to battery-hybrid and shore power was key to get the new contract,” Solstad Offshore chief executive Lars Peder Solstad tells OSJ.
“As a part of the contract, Solstad and DeepOcean have jointly agreed to work further with new technology to reduce emissions even more on Normand Ocean using hydrogen-based fuels. This will be a natural phase 2 of the upgrade project,” says Mr Solstad, adding, “Presently we are in the planning stages of this process, but we target to start a project together later this year.”
Solstad Offshore has selected Seam (former Westcon P&A) in Norway as its main supplier for the 1 MWh battery conversion project of Normand Ocean. The project will take place in Norway later this year, according to Mr Solstad.
Solstad will install the 1-MWh battery system and deploy a shore-power connection for recharging for the upgrade of the 2014-built MT 6022-design CSV.
S&P activity
DOF Subsea completed the sale of 2001-built CSV Skandi Neptune, which was converted for its current subsea support functions in 2005.
DOF will turnover the MT 6016-design vessel to its new owner in Q3 2022 once it completes its current contractual commitments.
Meanwhile, Solstad Offshore continues to trim non-core OSV tonnage from its fleet, most recently selling two 14-year-old and one 22-year-old AHTS vessels from its fleet in August and September. Its subsidiary Deep Sea Supply Labuan II Ltd sold the AHTS vessel Sea Ocelot, while another Solstad subsidiary, Solstad Offshore Singapore Pte Ltd, shed the AHTS Nor Tigerfish.
Under its restructuring agreement, Solstad plans to divest 37 vessels, trimming its fleet to about 90 vessels.
Its wholly owned subsidiary, UK-based Progress Offshore Ltd, sold the AHTS vessel Normand Progress for an undisclosed price. Built in 1999 by Ulstein Verft and flying the Isle of Man flag, Normand Progress is a UT 742 design, with an overall length of 95 m, beam of 24 m, depth of 9.7 m and maximum draught of 8.3 m. Among its other features are an A-frame with a safe working load of 250 tonnes, knuckle job cranes, a cargo deck area of 950 m2 and accommodation for 75.
Demolition levels double
Solstad sold the 1999-built AHTS vessel Sea Panther for recycling. Based on a KMAR 404 design, 74-m Sea Panther has a bollard pull of 174 tonnes, deck space of 560 m2 and accommodation for 26. It was built at the Kvaerner Kleven Lervik shipyard in Norway.
No sale price was reported by Solstad, but VesselsValue estimated the demolition value at around US$2M on 20 August.
Solstad Offshore said it is considering several vessels for green recycling at European shipyards, with a focus on the highest standard of green recycling.
Demolition levels this year are running almost twice 2020 levels, according to data as of July from VesselsValue. Some 42 OSVs have been scrapped this year, up from 22 in 2020. Scrapping activity is still behind the levels seen at this time in 2019, when 64 OSVs were sent to demolition yards.
However, the value of the demolition sales YTD in 2021 is in-line with those in 2019. Demolition sales of OSVs in 2021 have totalled US$33M, down 8% from the US$36M in 2019. Demolition sales in 2020 were US$13M.
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