It is now 18 months on from the oil price falling to unprecedented levels in modern times, the offshore sector is still in deep trouble. Small chinks of light are appearing but flatter to deceive owners trapped in billions of US dollar expenditure commitment on newbuildings which are becoming ‘unwanted’ in their originally role as the recession continues.
Shipbuilders are dealing with a long line of requests for delivery delays most of which are being granted. Better this move than the cancellation route. In the spring the oil price rose to US$45-50 a barrel and has steadied around this point spreading cautious optimism in the offshore community.
The industry crisis is still seriously affecting financial positions of owners, charterers and operators with the corruption scandal in Brazil not helping as it is paralysing operations there. The oil majors are choosing to keep faith with long-term relationships, but it is unclear how long this can last. Now Shell, buoyed by the oil price moving upwards, has revised its business strategy in deep water projects to work with US$45 a barrel for break even costs. The whole industry may have to be reshaped to work with lower oil prices. The heady days of over US$100 a barrel are unlikely to return soon, if at all. The downside to the Shell move however will be a 50 per cent cut in its employment of OSVs. Other oil majors are likely to follow suit.
Some drilling rigs are resuming employment, but recovery will be a long haul. However, reasonable optimism for 2017 is not without some justification, with a worst case recovery scenario of not before 2020. For the shipyards OSV orders have virtually dried up. The major designers and builders have adapted their offshore portfolio to pursue other specialist vessels in the small cruise and exploration markets. Tug orders have also materialised as valuable business. Some deliveries of OSV’s are taking up charter employment but at soft rates while others are going straight into lay up.
The trickle of new business is finding China in a more competitive position as Europe, and in particular Norway experiences an ordering drought. The latter, much to its credit, is now adapting by gaining business for other, non-offshore specialist designs. Norway markets its expertise globally and, along with other countries, is selling designs and equipment packages overseas.
The leading European designers continue to seek out opportunities to expand their offshore portfolio to other shipyards. Shanghai Merchant Ship Design & Research Institute (SDARI), which is a division of China State Shipbuilding Corporation (CSSC) has signed a co-operation agreement with Wärtsilä Ship Design for development of construction of OSV’s. SDARI already operates a successful design portfolio for dry cargo and container ships. Wärtsilä Corporation took its Chinese influence a stage further by establishing a joint venture company with CSSC to concentrate on China’s expanding market and desire for more electrical and automation solutions for marine application.
In this period of an order drought it is encouraging to know that the research and development departments of the designers have not neglected the OSV industry. There is more emphasis on multi-purpose units for greater employment opportunities globally. Singapore based Ultra Deep Solutions (UDS) awarded a contract to China’s Wu Chang Shipbuilding Industry for construction of one plus optional one DP2 4,000 dwt diving support construction vessel. This is another example of how far China has come in tackling sophisticated designs. The new order will carry class notations of ‘Clean Design’ and SPS Code.
Maximum accommodation is 120 persons and an 18-man single-bell saturation system can operate at 300m depth. A 150 tonne AHC crane is fitted. Classification covers world-wide operations. Fresh from its agreement with SDARI, Wärtsilä Ship Design signed a contract with Shanghai Bestway Marine Engineering to design a new diving support vessel for Shanghai Salvage Bureau. The vessel will be able to operate in waters up to 6,000 metres deep and will engage in salvage, construction work and saturation diving operations. Wärtsilä’s key task is to provide the initial and basic design of the ship and leave references for future, more detailed engineering requirements for constructing the vessel.
With new orders at a premium it is interesting to note the presence of Spain and Turkey in winning OSV business. Norwegian shipbuilder and designer Havyard won business to design and supply an equipment package to Turkey’s Cemre Shipyard. The ship equipment package is worth NKr100 million (US$12.3 million) and work on design and equipment has immediately begun. Havyard will include its own Concept Bridge. Havyard’s 832 MPV will offer a bollard pull of 100 tonnes and deliver to Danish operator Esvagt in the spring of 2018. The vessel will take up a long-term charter to Hess Corporation, USA. This contract followed closely upon an order at Cemre Shipyard for delivery to Esvagt in the second half of 2017 of an offshore windfarm support vessel again to Havyard design.
The Vard Group of Norway will reduce its dependency on the oil and gas business following heavy losses and diversify to concentrate on small cruise vessels and yachts. One area of growth in OSV involvement is in the Middle East and focus will be increased on owners in the region to sell OSV designs. Gulf Marine Services (GMS) of Abu Dhabi will construct and maintain its OSV presence through expansion of a new shipyard at Zayed Port. This site commissioned in March 2016 with delivery of the self elevating support vessel Gulf Sharqi which will be followed in due course by fully fledged OSVs. GMS will move from its old yard in Mussafah to Zayed Port, Abu Dhabi, which offers increased capacity space of 14,000m2.
One of the largest operators in the US – Edison Chouest – has invested US$68 million to open a new shipyard in Port of Gulfport, Mississippi. The project will be provided with US$36 million and the new yard will be called Top Ship LLC. Operations will start around July 2017.
For the moment, the current recession has largely stopped construction of platform supply vessels in Malaysia and Indonesia, which were being built on speculation and offered for resale at cheap cost. Many of these newbuildings were subcontracted to China for completion. This is good sign in the market and more European built vessels could now find new spot business in Asia. OSV owners can just about last out to the end of 2016 before re-examining their options as nervous creditors and especially the banks question their loan covenants and whether to grant extensions.
For equipment suppliers, the going will remain tough. There is always a time lapse of one year at least on such orders being delivered, so this year is when they are likely to be hit hard with a newbuilding drought in all sectors except tankers, gas and crude. The resilience of the offshore industry will prevail but it could be a case of only the strongest companies surviving the recession.
© 2023 Riviera Maritime Media Ltd.