Order glut highlights growing subsea sector

As regular readers of this magazine will know, owners and operators in the support vessel market and the subsea market in particular are increasingly optimistic about the prospects for the offshore oil and gas sector.

Confidence in the subsea market has been expressed in a number of orders for subsea vessels – in fact, over the last few months there have been at least a dozen orders for new vessels, almost all of which have been placed with Norwegian yards.

As brokers such as Derrick Offshore highlighted recently, since Volstad placed an order at Bergen yards for an ST-259 design in February at a cost of NKr800 million (US$139 million) many other companies have followed suit and placed orders themselves, bringing the total value of subsea orders placed in recent months to almost US$1.5 billion.

As Derrick Offshore noted, several orders will have been gestating over the past year or so and the short delivery times on some of them indicates that the yards who won the contracts anticipated the increase in demand and started preparing slots in advance.

A notable feature of this most recent round of newbuilds is that the vessels – and the value of the contracts – have been getting larger and larger, with the most recent orders being for particularly large, sophisticated and expensive vessels.

The orders placed by North Sea Shipping and Eidesvik were for large construction/pipelay assets that are costing the companies in excess of NKr1 billion (US$165 million) each. Other orders have been of significant size but have been focused more on the offshore construction market and ROV support sector rather than the super-sized assets that can perform most tasks, including pipelay.

Brokers such as Derrick Offshore say they are of the opinion that there are more orders to come – at the time of writing, some of the major players in the market had not placed orders and there are plenty of rumours of impending contracts. It is also likely that yards in Southeast Asia and the Asia-Pacific will start to see orders too, as the number of slots available in Norway starts to diminish.

Brokers say most of the orders placed already have been against contracts or charters, implying that demand is still there but it is likely now that we will see more speculative orders with owners looking to secure contracts closer to delivery. Of course, financing for speculative orders is harder to come by nowadays, but any further tightening in the market this year will certainly help.

The same brokers say the 2012 and 2013 seasons are already pretty tight, with the majority of the tonnage fixed on large projects, but with much of it arriving just in time for the 2014 season the market then may be more balanced. Any additional orders will not arrive in time for the 2014 season, although they probably would be ready for the 2015 season. This will be a definitive year, says Derrick Offshore, as there will be very few, if any, vessels leaving the market between now and then. If the subsea market does not perform as expected, or there is a major crash in the oil price, then there could be a lot of very expensive vessels sitting idle, with no work to keep their owners happy.

Another well-known broker, Westshore, is of the opinion that, in addition to expectations of a strong market going forward, much of the ordering that has been taking place reflects the fact that there is also a need to replace older tonnage. Westshore says it expects that there will be growth from subsea fields in Norway in the next couple of years whilst the UK market remains steady.

According to Rystad Energy both areas combined are expected to see spending on subsea equipment, installation and services reach NKr80 billion (US$13.2 billion) by 2017, up from NKr38 billion (US$6.3 billion) in 2011.

As Westshore notes, a large number of subsea trees are due to come on stream in 2012, possibly as many as 80, and with increased investment the average will reach 100 trees yearly from 2012 to 2018. “The fundamentals of this industry are positive,” says Westshore, noting that the offshore oil and gas industry is moving inexorably towards more and more subsea projects.

“An important point when looking at all this ordering is the existing fleet, which has seen solid growth since 2007,” said Westshore. “However, compared to anchor handlers and PSVs there has been much less growth.” Since 2000 the fleet of subsea vessels of in excess of 125m, including newbuilds, has trebled, but the anchor-handling tug/supply (AHTS) fleet has grown sixfold and the PSV fleet fourfold. This can partly be attributed to the fact that these very expensive, very specialised vessels are much more difficult to finance and to build on speculation. Another interesting point is that a majority of the vessels that are larger than 125m date from the 1970s and 1980s. OSJ