Strong demand drives bullish outlook for OSVs as Biden administration flubs energy policy

Mr Kneen spoke in the aptly named panel discussion, ‘The OSV market —Let the good times roll’, joining executives from two US-based OSV owners, Robert Gwinn, president of Harvey Gulf International Marine (HGIM) and Peter Laborde, president of Laborde Marine.

No to newbuilds

One of the questions that inevitably emerges in a tight market with rising day rates is: ‘When will construction contracts be placed for new vessels?’ But the idea of a newbuilding programme currently seems to be out of the question for OSV owners.

“Every single Jones Act segment has a fleet renewal problem” prompted panel moderator Charlie Papavizas, a well-known maritime attorney and expert on the US cabotage laws known collectively as the Jones Act.

In response, Mr Kneen highlighted several issues that are constraining plans for newbuildings, notably the uncertainty around future fuels, financing availability and the changing global energy picture.

“The energy transition creates uncertainty on how long you will need the boat” he said.

Mr Gwinn pointedly said taht oil companies and energy developers need to “step up” with long-term contracts and realistic day rates if they want to demand newbuild vessels, noting that the cost to build a service operation vessel (SOV) in the US is at least US$150M.

“You need a 10- to 15-year contract to pay that out,” said Mr Gwinn.

Mr Laborde added “You have to factor in that there is going to be a downturn during the lifetime of the boat”.

Based on his assessment of current construction costs, tight financing and attitude towards fossil fuels, Mr Laborde concluded “There is not going to be a newbuild built for traditional oil and gas”.

As a privately held, New Orleans-based vessel owner with a fleet of 22 crewboats and supply boats, Mr Laborde said Laborde Marine will be opportunistic and will be looking for OSVs in the second-hand market. The Louisiana owner has already purchased two 240-ft (73.5-m) OSVs that could eventually be deployed in the offshore wind market following conversion. 

Nevertheless, the global OSV market remains tight, with just about “a dozen or so” large, high-spec boats in cold stack, according to Mr Kneen. Some boats have even been “cannibalised” for spares and equipment, and it is unlikely that any smaller OSVs will be reactivated, he said.

Mr Papavizas asked the panel to comment on the Biden Administration’s slow-rolling of the oil and gas lease sale programme. The administration was ordered by the US Court of Appeals for the Fifth Circuit on 14 November to hold Gulf of Mexico Oil and Gas Lease Sale 261, which has now been scheduled for 20 December 2023.

“It’s imperative to look for new production offshore” said Mr Laborde. But Mr Kneen said “The US doesn’t have an energy policy”, while Mr Gwinn said flatly, “A new administration is needed”.

There was a feeling among panellists that other countries, with national oil companies, have acted quickly to take market share in oil and gas, while the US has been stumbling. Mr Kneen pointed to Norway and Brazil as examples.

No incentives for zero-emission OSV

Mr Kneen and Mr Gwinn also discussed their fleet investments in battery technology and alternative fuels, which have yielded significant reductions in CO2 and greenhouse gas (GHG) emissions. Mr Kneen said battery-hybrid OSVs have shown reductions of 15-20% in CO2, but noted this performance was only really an advantage in Norway. “No one is ...asking for a zero-carbon footprint vessel” he said.

There is no incentive from charterers or governing bodies for owners to make investments in low- or zero-carbon vessels, according to Mr Gwinn. He said investments in LNG-fuelled technology and batteries have been costly for HGIM. He put the costs of LNG at US$20M and batteries at US$5M per boat. HGIM was the first to build LNG dual-fuel platform supply vessels in the US.

Oil companies “want to save emissions but don’t want to pay,” said Mr Gwinn.

Weighing in, Mr Laborde added, “We never lost a job because we did not have a low-emission vessel”.

Mr Kneen said energy developers are “very adroit at playing the industry against each other”.

With few valuable assets on the sidelines, demand robust and the market tight, the future for OSV owners looks bright, according to Mr Kneen who foresees a “long-term bull market” continuing to strengthen in the favour of owners.

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