OSJ catches up with two of the speakers scheduled to present at the Middle East Offshore Support Journal Conference in Dubai this April to hear what the future for the sector may hold
“From a relative perspective, I still see the Middle East as a bright spot,” says Arga Energy Consulting’s managing director Vivek Seth. “Historically, the North Sea has been a good indicator of the oil and gas industry working globally – from market trends to driving new safety initiatives. Although slightly volatile, this summer they’re talking about the rates picking up and there being a squeeze on the availability of vessels, which to me is a good omen for the Middle East,” he explains.
With lower oil production costs, shelf markets like the Middle East experience signs of a turnaround more quickly than deep-sea markets. However, Mr Seth says, even an increase in exploration and production spend in the Middle East’s offshore market will not push day rates up for vessels. The additional demand is likely to be covered by a further influx of vessels from Southeast Asia.
“[At the] end of the day, it becomes a level playing field because of the commonalities between the Middle East and the Southeast Asian markets, ie the shelf market, predominantly mid-sized and lower-end vessels,” he says.
This is part of the “oversupply conundrum” which Mr Seth will address on 24 April, the first day of the two-day Middle East Offshore Support Journal Conference in Dubai.
Currently, around 20% of the Middle East fleet is from Southeast Asia, according to Mr Seth, keeping day rates in the Middle East hovering around what he calls the ‘global average rate’.
He cites the lack of cabotage laws and the traditionally open market of the Middle East as fundamental factors working against rate increases.
“In the Far East – Indonesia, Malaysia, etc … they have a relatively more mature industry with respect to their cabotage laws. It’s not so easy to just walk into the Far East and start working,” he says.
“The vessels from Southeast Asia are in the Middle East to stay”
The same has not been true in the Middle East but there are enough commonalities in the fleet profiles of the Middle East and Southeast Asia that the Middle East became an obvious choice for a haven when the market collapsed in Southeast Asia.
Saudi Arabia and the UAE have begun implementing frameworks for contracts that are weighted toward local development. But as Mr Seth explains, they do not mirror the legal protections of cabotage law.
Despite this, he believes the Middle East market will ultimately become more closed.
“In a few years’ time, there will be a preference for local flags and local classification. The UAE has established its own classification society, so I strongly feel, give it a few more years and they will start creating stronger cabotage laws at least in Saudi and in the UAE,” he predicts.
The shift, he says, is at least five years away and its course will be marked by a series of economically pragmatic steps to ensure the offshore oil and gas supply chains that feed the region’s economies are not disrupted.
“It’s going to happen in a very phased manner, while managing integrity of operations” Mr Seth says.
In the meantime, the vessels from Southeast Asia are in the Middle East to stay.
“Assuming it picks up in the Far East, it’s highly unlikely these owners would go back”.
So, the downward pressure on day rates will continue, but utilisation rates are steadily creeping up, which is the first sign of the market turning around, Mr Seth says.
In the brownfields segment of the Middle East market, Mr Seth retains the optimism he showed at the 2016 Asian Offshore Support Vessel Conference in Singapore.
“A lack of cabotage laws and the traditionally open market of the Middle East are fundamental factors working against rate increases”
“Subsea, yes, I think that will continue to grow. And the brownfields, effectively, yes. The reason why I say that is because there is a backlog at play. Offshore facilities need to be upgraded or new facilities installed for production. No questions about that,” he says.
“The only tricky part is, these subsea vessels are high-value assets, so the question would be finding the appropriate solution to do the work in a cost-effective way.”
Optimisation is key, according to Mr Seth.
“Besides just providing vessels, can you do services like survey, engineering, subsea, etc? These are the things that are going to be attractive to the client,” he says, adding that integration of services allows owners to step out of the traditional commodity market in to a more diversified landscape. Ultimately, Mr Seth feels this is the best way to “keep the clients and banks happy”.
Digitalisation is another route to optimisation and diversification, and Mr Seth says it is particularly advantageous in smaller markets.
“It’s those small markets where becoming more efficient in your operations, your cost management, your safety, will make a big difference between the winners and the losers. Digitalisation and big data are going to be your differentiators in future,” he says.
A future-focussed industry
Demetres Armanes (ABS): “Creating the capability for the industry to make a leap forward”
It is an opinion shared by Dr Demetres Armanes, senior research engineer at ABS. Systems optimisation and harnessing data through digitalisation are the future-focussed trends which Dr Armanes believes will shape the oversupplied OSV sector.
Dr Armanes, who will speak about smart technology and system design during day two of the Middle East Offshore Support Journal Conference in Dubai, highlights integrated digital solutions as the fastest growing areas among shipyards, architects and designers.
“The market has understood the power and benefit of free data onboard – along with secure and safe infrastructure to implement this data-handling functionality – and they are asking us for certification,” he says.
Owners see these data-harnessing systems offering benefits to their client base, Dr Armanes says, and as a logical solution to the ever-growing reporting load around tied to compliance requirements.
“We are starting to see applications for remote monitoring tying in themes of health or performance states … specifically for the DP systems”
“From that end, I think there will be more uptake and it will become more important in relation to the decarbonisation goals that we need to achieve as an industry by 2021,” he notes.
“It will be a logical solution for compliance and also, as of now, it affects the price of the vessel. Historical data can provide health state or fuel consumption performance trends. So, that’s another thing for operators to consider when they are investing in a vessel,” he explains, adding “that data will be a part of the resale strategy.”
Of course, the digital kit that currently plays the most significant role in the offshore support vessel sector is the dynamic positioning (DP) systems many such vessels have onboard, systems which Dr Armanes sees evolving to become more customised.
“We are starting to see applications for remote monitoring tying in themes of health or performance states … specifically for the DP systems,” he says. “I think this is an indication of how most technology can be made more specific to an OSV.”
This level of specificity in implementing digital tools onboard is the direction of travel for ABS, as Dr Armanes explains: “Even within the same fleet, each vessel might be quite different, so each individual OSV would be treated by ABS as a unique project. And the functionality implemented on that particular vessel would be viewed, implemented and tested on that particular vessel.”
ABS offers support to owners agreeing contracts with third-party technologies and digitalisation providers. It does so to ensure all stakeholders are aware of the technical requirements the systems will need to consider to achieve compliance with various class, flag and other regulations. As a further step to help systems meet safety requirements, ABS also offers what it calls service provider ‘recognition’ and product design assessments prior to a system or systems being brought on board the vessel.
“Autonomous vessels are a reality, but perhaps not an immediate one”
This initial wave of digitalisation is already producing results, but will smart systems one day all join up to operate highly-complex vessels with minimal human intervention?
“Some players are proposing autonomous vessels,” says Dr Armanes; “I think this is a reality, perhaps, but not an immediate one.”
Why, then, are land-based autonomous vehicles evolving more quickly?
“The big difference between land and sea is the communications technology. On land, we have high-bandwidth communication systems all over, but in a sea-going vessel’s environment, you must have a step-change [in communications technology] to go from partially autonomous to fully autonomous because that link is not there in the marine areas,” he explains.
“I think this is the biggest challenge; we need to actually take a leap when we’re ready as an industry. And I think that is just where we are now – creating the capability for the industry to make that leap forward.”