A healthier global OSV fleet for a recovering market

Two years removed from the start of Covid, the OSV industry is much healthier. This starts with a ‘slimmer’ global OSV fleet reshaped through increased scrapping, vessels exiting the market and a dearth of newbuilds over the last three years. Consolidation, debt restructurings and liquidations have further strengthened and balanced the market.

Prior to March 2020, the offshore oil and gas market appeared poised to emerge from the years-long downturn that began in 2014 before the declaration of the pandemic (and its subsequent energy demand destruction) quickly unraveled any such hope.

While lingering Covid concerns and the Russian invasion of Ukraine weigh on the market, there are reasons for optimism, too.

Among those are tightening rig and OSV availability, increased utilisation and day rates and emerging opportunities in offshore wind.

Underpinning the brightening picture will be increased offshore E&P upstream spending. Westwood Global Energy reported in April that offshore E&P upstream capex will exceed US$6Bn in 2022, a 28% increase year-on-year over 2021. Westwood Global Energy anticipates 77 offshore fields will be sanctioned this year – a 20% increase compared to 2021.

Forecasts are upbeat for increased activity in Brazil, West Africa, the Middle East and the North Sea. But the recovery has not moved at the same pace everywhere.

Hardest hit by the downturn, the US Gulf of Mexico, has been slow to recover; current OSV and offshore construction vessel utilisation rates are still in the mid-60s with over 400 vessels remaining in layup. While the Biden Administration has shown no love for the sector — it cancelled the most recent round of offshore lease sales and has yet to submit a five-year plan — the US oil patch will see increased deepwater development in 2022.

“Consolidation, debt restructurings and liquidations have strengthened and balanced the market”

Chevron, for one, wants to ramp up oil and gas production from deepwater Gulf of Mexico. Its Mad Dog 2, St. Malo injection, Anchor (in partnership with TotalEnergies) and Whale (operated by Shell) projects are due to come online between 2022 and 2024. By 2026, Chevron expects to be producing about 300M barrels of oil equivalents per day from deepwater with a carbon intensity of about 6 kg CO₂e/boe —one-third of the industry average of 18 kg CO₂e/boe.

In May, Chevron and TotalEnergies sanctioned the Ballymore development which will be developed through three production wells, tied back to the Chevron-operated Blind Faith Floating Production Unit. First oil is expected in 2025. By utilising existing infrastructure, the project will lower development costs and lower emission intensity.

These projects tie in with Chevron’s plans to reduce its upstream CO₂ intensity by 35% by 2028, while achieving net-zero upstream Scope 1 and Scope 2 emissions by 2050. Carbon-efficient offshore operations will be key to operators like Chevron with net-zero commitments, which will look to OSV owners to support reductions in Scope 3 emissions. This will increasingly lead to investments by OSV owners in digitalisation, optimised logistics and battery upgrades. Ongoing collaboration between charterers and OSV owners, such as that of the Forum on Decarbonising the OSV Industry, will be vital in accelerating the transition of the global OSV fleet for the lower carbon future.