How the OSV industry is fundamentally changing
Big changes and big opportunities - that was the message at the heart of Topaz Energy & Marine chief executive René Kofod-Olsen’s keynote address on the opening day of the Annual Offshore Support Journal Conference, Awards in London.
“As an industry … we cannot rationally expect to ever revert to the days where oil companies have the freedom to spend without proper control of costs,” Mr Kofod-Olsen said.
The current downturn has changed the industry fundamentally, according to Mr Kofod-Olsen, but, with energy demand on the rise and with a projected increase in offshore exploration and investment ahead, there are now tremendous opportunities after a period of cost rationalisations.
“It is critical that none of us go on spending sprees or reactivate vessels without thought. The costs to the individual operator and the industry as a whole are simply too high,” he said, adding “May I plead here today with the audience to listen to your CFOs and not our sailors’ heart.”
Oil and gas market update – what does the future hold?
Rystad Energy’s London office chief Markus Nævestad told the opening session at the 2019 Offshore Support Journal Conference & Awards that record-high cash flows in the exploration and production (E&P) sector point towards increased capital expenditure over the next few years.
In fact, average capital expenditure on offshore projects in the next two years has the potential to double over 2017 and 2018 figures, according to his analysis.
Mr Nævestad said his firm sees a clear correlation between high levels of operational cash flow and capital expenditure.
After the precipitous plummet in 2015-2016 and flat numbers in 2017-2018, Rystad foresees a significant bump in 2019 and beyond.
“For the offshore market, we expect that to turn this year and continue to be a positive story through 2021, at least,” he said.
Deepwater to become key to balancing drilling rig market
Offshore drilling rig demand is expected to improve in the next three years, too, as energy companies return to deepwater exploration and shallow water field redevelopment.
This could lead to a more balanced market for floating rigs – semi-submersibles and drillships – from 2020, according to Wood Mackenzie director for upstream supply chain consulting Dr Wei Liu.
“There is an upside for the next decade in deepwater exploration and development drilling,” Dr Liu explained in the first session of the OSJ conference.
This will benefit operators of deepwater rigs that can drill in water depths of more than 500 m and ultra-deepwater (1,500 m) in the long term. The latest (sixth and seventh) generation drilling rigs that were built in the last construction boom of 2012-2015 will be best placed to compete for the work.
Rapid growth expected for global offshore wind
Owners of offshore support vessels active in the renewable energy sector will benefit from significant growth in offshore windfarm construction and maintenance requirements over the long term according to 4C Offshore chief executive Chris Anderson.
The amount of energy generated by offshore wind turbines is expected to grow almost 10-fold in the next 10 years, to more than 200 GW by the end of the next decade, he said.
"Growth will be dramatic worldwide as 172 GW of power is added in the next decade, with significant growth in China, Europe and some projects in the US, Taiwan, South Korea and potentially India," he said.
Mr Anderson said he expects 20% growth year-on-year in installed capacity.
Middle East remains bright spot for OSVs but is still ‘treading water’
The OSV market in the Middle East is not showing massive improvements, but there is cause for hope and it remains stronger than other regions, said Dubai-based consultancy Synergy Offshore’s chief executive Fazel A Fazelbhoy.
“We’re treading water,” he told the 2019 Annual Offshore Support Journal Conference, explaining “We’re not taking water on board but we’re not doing great either.”
There are currently around 450 OSVs in the Middle East, he said, with around 100 of these having come from southeast Asia. While there was hope some of these would leave the region, this has not been realised, he said.
Vessel utilisation rates are generally around 60%-65%, although some leading companies are claiming rates of around 90%. However while utilisation seems to have stabilised and is edging upwards, Mr Fazelbhoy noted that rates are not expected to recover until at least late 2019-early 2020.
Overall, Mr Fazelbhoy said the Middle East is still seen as a “global bright spot” for OSVs, attributing this to the constancy of activity levels in the region.
UK North Sea PSV market at risk of ‘shooting itself in the foot’
While a recovery of sorts continues in the UK North Sea platform supply vessel (PSV) market, “owners still have the collective capacity to shoot themselves in the foot” if they reactivate too many vessels from layup too soon, noted Seabroker offshore market analyst Paul Dear.
Mr Dear highlighted that UK North Sea PSV market has been in recovery for the last 18 months. To illustrate this, he noted that 23 more PSVs were on term contract in July 2018 than at the same time a year previous.
However, Mr Dear said that the sector was still heavily oversupplied, with about 60 PSVs in long-term layup. He feels the cost to reactivate those vessels could be as much as £1M to £2M (US$1.3M to US$2.6M) and the current average day rates of £5,000 to £7,000 would not justify reactivating them.
In short, he said PSV owners must carefully consider how and when to reactive vessels from layup, as too much too soon could prove disastrous for the current recovery.
Movement in Asia and Africa but oversupply remains an issue
The Asian and African markets are showing some signs of improvement but the oversupply problem is still obvious in both areas, Captain Mike Meade of M3 Marine said yesterday.
Captain Meade noted that while Clarkson’s OSV index has historically tended to follow the oil price, this has not been the case in recent years. “We’ve got a decoupling in this cycle, a decoupling we’ve never seen before,” he said.
And the explanation? “We’ve come apart because of huge oversupply. [There’s] too much steel and too much debt, and none of us saw shale oil coming.
Presenting on both markets at the 2019 Offshore Support Journal Conference, Captain Meade highlighted the numbers of OSVs in Asia and Africa that have been laid up for more than two months (defined as having had AIS turned off for eight weeks or more). Based on VesselsValue data, in Asia more than 400 vessels were in such a condition, while in Africa 229 were laid up, mostly in southwest Africa, the Gulf of Guinea and Angola.
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