Robust demand in 2023 has offshore support vessel owners feeling the best they have felt in years
They have been reinvigorated by rising day rates, strong utilisation and increased offshore energy spending. Many OSV owners are smiling for the first time in years. And the early indications are that 2024 will be even better.
Clarksons Research managing director, Steve Gordon, reported Clarksons Offshore Index - which tracks offshore drilling rig, OSV and subsea day rates - rose by 27% in 2023 to a multi-year high of 106 points. This compares with a dismal score of 45 in 2017, and aligns more closely with the good times of 2008 (114) and 2013 (101). “Our projections suggest the Clarksons Offshore Index will reach all-time highs in 2024,” said Mr Gordon.
The positive outlook for OSV demand will be supported by continued project investment. Clarksons Research is estimating US$116Bn of capex for offshore oil and gas projects reaching FID in 2023 - up 49% on the 10-year trend - and this year will be even rosier. “We are projecting US$125Bn for 2024,” said Mr Gordon.
It’s a welcome change for owners who had to endure a prolonged down cycle that began in 2014, marked by depressed rates, oversupply, weak E&P activity, and gushing red ink. OSV owners are now strapped in and preparing for a potentially equally long run of good fortune.
Positive signs of an offshore recovery had begun to sprout in 2020, before they were quickly ploughed under by Covid-related energy demand destruction.
“OSV owners are strapped in and preparing for a long run of good fortune”
Those signs began to re-emerge in late 2021 and have since blossomed into a full and robust recovery.
Well-respected offshore brokers and energy analysts from Europe, Asia and the Middle East have all lined up behind the idea of a super cycle - a prolonged up cycle of increasing rates and strong utilisation, underpinned by tight vessel supply, high charterer demand, steady E&P activity and little new capacity.
How good will this super cycle be and how long will it last?
In a recent interview with OSJ, respected offshore brokers Mike Meade and Rob Day said this super cycle has legs and provides OSV owners with the upper hand. Both gentlemen see little chance for newbuilding over the next year, meaning there is not going to be a major influx of new tonnage. This will leave charterers jostling for all available OSVs, keeping demand strong, while increasing day rates and the values of assets. Compounding all of this is the lack of willingness from banks to lend to oil and gas and the lack of available shipbuilding slots to construct OSVs.
“Secondhand tonnage is going to be the only tonnage available, and prices are going to continue to go up,” noted Mr Day, who is the managing director of the M3 Marine Offshore Brokers UK, launched by Mr Meade’s M3 Marine Group in October.
Orders for new tonnage will not be placed until prices for secondhand tonnage reach an inflection point, noted Mr Meade. But “rates have a bit to go,” he said. He expects the super cycle to last five to seven years.
Discussion of the super cycle will be one of the topics front and centre when the international OSV community meets at the Annual Offshore Support Conference, Awards and Exhibition in London, 7-8 February 2024. Given the current market fundamentals, this super cycle is built to last and could be with us until near the end of the decade.
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