Archives for posts with tag: offshore industry

Offshore is quite a project driven sector in the sense that work at offshore fields drives much of the demand for offshore vessels. But offshore is also project driven in the sense that offshore output growth is linked to field project start-ups. And since 28% of global oil production is offshore, the aggregate of individual offshore start-ups can potentially have significant implications for wider energy market trends…

For the full version of this article, please go to Offshore Intelligence Network.

With the industry hoping for better “grades” after the “effort” of recent years, this week’s Analysis updates our half year shipping report showing a ClarkSea Index up 9% y-o-y but still below trend since the financial crisis (see Graph of the Week). After comments of “must do better” and “showing potential” in recent years, do the statistics suggest “extra classes” will again be needed over the summer holidays?

For the full version of this article, please go to Shipping Intelligence Network.

Since the 2H 2014 offshore downturn, when investment in new exploration and development dried up, many offshore vessel owners will have tended to agree with the child heroine of the 1976 musical Annie: “It’s a hard knock life”. However after three years of setbacks and weak markets, some are now starting to see positives, as a few indicators show encouraging signs. But does that mean it’s time to invest?

For the full version of this article, please go to Shipping Intelligence Network.

Vietnam has the third largest proven oil reserves in the Asia Pacific region – but much of its existing offshore production is from declining shallow water fields. So the country’s first deepwater discovery, made in October, is a potentially exciting development. Could deepwater E&P activity in Vietnam be set to take off, or will weak oil prices and disputes over territorial waters prove problematic?

Shallow Beginnings

Most of Vietnam’s 0.28m bpd of offshore oil and 0.99bn cfd of offshore gas production is derived from fields in the Nam Con Son and Cuu Long basins, all of which are in less than 200m of water. The Cuu Long basin is perhaps the most successful area off Vietnam as it is home to many large fields, including Bach Ho, Su Tu Vang and Rang Dong. The dominance of shallow fields has skewed development towards fixed platforms. 88% of all active Vietnamese fields are exploited as such. Of these fields, the Bach Ho field accounts for 34 cor 37% of the total found on active fields.

Operators in Vietnam mainly consist of local and regional NOCs as well as IOCs (most commonly via joint operating companies in partnership with Petrovietnam). While significant market reforms have increased foreign investment in Vietnam’s offshore sector, further improvements to its transaction and tax systems could quicken the pace of foreign participation in the future.

Wading Into Deeper Waters

No significant shallow discoveries have been made recently, meaning that there is little to offset Vietnam’s depleting shallow water reserves. This highlights the need to break into deepwater frontiers, which could hold substantial levels of undiscovered hydrocarbons. The VGP-131-TB well, Vietnam’s first discovery in water depths >500m, was drilled in October 2015 by the Vietgazprom JOC, at depths of 1,600m in the Saigon basin. The ultra-deep find could provide momentum for Vietnam’s push into deepwater exploration. However, unlike China, which is able to independently bring deepwater fields like the Lingshui 17-2 online, Vietnam could still need to rely on foreign cooperation to jointly develop such finds in the short term.

Shaky Prospects

Vietnam’s hydrocarbon resources mainly lie in the South China Sea, with the most recent discovery at the southern end. The sea is an area of multiple disputed territorial claims by many countries, including China. This could impede any deep developments, if international partners were to view overlapping sovereignty claims to be an excessive business risk. Perhaps more importantly though, the post-downturn attitude of IOCs is one of cost-consciousness given lacklustre economic conditions. This could skew near-term interest towards safer EOR projects instead of unproven deeper water development in the South China Sea.

Since Vietnam’s historical track record is in shallow waters, even if further deepwater discoveries are forthcoming, then the chance of rapid deepwater developments in the South China Sea is probably going to take time. It is likely to need outside expertise, and the current energy markets may well not be conducive to this. That said, the discovery of Vietnam’s first deepwater field marks a new chapter in the country’s oil and gas story.

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The offshore industry is heavily dependent on the well-being of the oil and gas sector, and with oil prices remaining below $50/bbl, the offshore market is largely full of doom and gloom. However, there is one sector for which headlines in November have been positive: offshore wind. Could this renewable energy source provide some owners with an alternative market and an opportunity for specialisation?

Something In The Wind

As the Graph of the Month illustrates, historically offshore wind farms have been located close to shore in shallow waters of less than 50m. Today, the industry appears to offer potential for the offshore market as both approved and proposed projects are getting increasingly deeper and further from shore. Following a slowdown in investment due to regulatory instability in key markets such as UK and Germany, future final investment decisions (FIDs) have been looking less certain. Indeed, in 2014 the number of turbine installations in the UK fell by 35% during the first six months of the year in comparison to 2013. Yet, November’s headlines might indicate a wind of change. Statoil has reached a FID for a pilot floating wind farm, Hywind, moored to the sea floor offshore Scotland. The departure from traditional fixed turbines opens up the opportunity for more ambitious, deepwater projects. DONG also made a FID regarding the Walney Extension in the Irish Sea, which will become the largest fixed offshore wind farm yet.

Vessel Requirements

The installation of offshore wind farms requires the use of number of construction vessels, particularly cablelay and heavylift units. Estimates suggest that around 100km of cabling is required per wind farm. However, self-elevating designs currently dominate the installation phase due to their stability. Although most existing self-elevating platforms can be used, an increasing number of units are specifically designed for operation within the wind sector: the wind turbine installation (WTI) fleet grew at a CAGR of 11% over 2005-2014. A peak in WTI vessel orders in 2010 following a third licensing round in the UK resulted in a record number of 10 units entering the fleet in 2012. As of November 2015, 31 WTI vessels were active globally. As wind farms move further from shore into rougher waters, requirement for larger WTI vessels is likely to increase.

An Alternative Market?

On the other hand, the maintenance phase of offshore wind farms has the ability to absorb more traditional vessels in the North Sea. A handful of PSVs and MSVs have been converted into accommodation vessels for maintenance personnel. However, in reality the main demand is for small crew transfer vessels, usually with a LOA of <25m. The crew transfer fleet has grown substantially from approximately 40 units in 2010 to over 200 in 2015.

For now, offshore wind remains a niche market rather than a viable alternative for the mainstream fleet. Future growth is largely dependent on how attitudes of governments and private companies will evolve. However, technological advances, such as Statoil’s floating wind farm, at least push the industry in a helpful direction for offshore as a whole.

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A sustained period of low oil prices has created a shortfall in offshore support vessel (OSV) demand, at a time when the sector has displayed rapid fleet expansion. Charter rates have fallen significantly, whilst the number of inactive vessels has reached record levels in some regions. An increase in vessel scrapping would seem to be an obvious solution to this problem, so why hasn’t this been the case so far?

Mirror The MODU Model?

OSV demand has fallen – at least 11% of the total fleet was laid up at start September. So far in 2015, 23 removals have been recorded from the OSV fleet (18 AHTS/AHT and 5 PSV/Supply vessels). For AHTS/AHTs this is a 29% increase on 2014 on an annualised basis. PSV removals, however, are down by 46%. In either case, the number of removals seems below what might be expected given the challenging market conditions.

For the AHTS sector in particular, rig moves provide an invaluable source of demand – a decrease in utilisation for these units has not been surprising given the sharp fall in E&P expenditure following the drop in oil prices. Oversupply is also a significant issue for the MODU market. However, the reaction from owners in that sector has been very different, as is evident from a net decrease of 15 units from the fleet so far in 2015.

The decrease in MODU numbers has been achieved in two ways. Firstly, by reducing the number of existing units – removals are currently up by 94% in 2015 on an annualised basis, already surpassing the record number of removals recorded for any full year. Secondly, the addition of newbuilds has been restricted, with the number of deliveries down by 39% in annualised terms in 2015.

Short-Term Gains

A likely reason for the low uptake in OSV removals relative to the MODU sector is that there is comparatively more value in scrapping rigs (in particular, floaters), compared to OSVs, on account of their larger size and steel content. Furthermore, it is relatively easy and cost-effective to lay-up or stack OSVs, which has been the preferred option for owners – at least 340 AHTSs and 254 PSVs are estimated to be laid up, although in reality this number may be even greater. Similarly, the sale of vessels for use in other sectors (e.g. utility support) provides some means of reducing active vessel numbers, although sales activity for OSVs in 2015 is currently down by 25% on an annualised basis.

However, whilst stacking of OSVs provides some respite for owners during times of oversupply, it can only be considered a short-term solution – especially given the size of the current OSV orderbook: the number of OSVs on order is equivalent to 11% of the active fleet and, although some slippage is expected, 293 units are slated for delivery by end 2015.

Long-Term Woes

The OSV dayrate index has fallen by 27% since the start of 2015 and, with no significant upturn in oil prices looking likely, pressures seem set to continue. Fleet growth stands at 2.3% y-o-y, and the issue of OSV oversupply is expected to remain significant. Against this background, the discussion of removals is likely to be ongoing theme.

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Self-Elevating Platforms (‘SEPs’) are generally used to provide offshore support for construction and maintenance projects. These units fall within the wider ‘construction’ sector in the segmentation of the offshore fleet, and can generally operate in water depths of up to 120m. The key deployment areas for these structures exist in the US Gulf of Mexico (GoM), West Africa and the Middle East. Despite high numbers of shallow water developments in the North Sea and South East Asia, there has been relatively little deployment of SEPs in these regions, although recent contracting patterns within South East Asia suggest this may soon change.

Rising Above Regional Regimen

The Graph of the Month shows the regional breakdown of producing fields with a water depth of <100m, as well as the share of self-elevating platform deployment across these regions. South-East Asia contains the largest number of shallow water developments with 552 active fields, closely followed by the US GoM (508) and the North Sea (452). However, there is a large disparity between these regions in terms of SEP deployment, with the US GoM accounting for the deployment of 161 units compared to the North Sea and South East Asia where just 10 and 19 structures are deployed respectively.

Lower deployment numbers in these regions can be largely attributed to a major factor in each region. In the North Sea, self-elevating platform use is often restricted by harsh operating conditions. In South-East Asia an ample supply of support vessels has provided ships for use in construction and support duties in the region.

Jacking-Up Orders

The current SEP orderbook includes 24 units with a record combined contract value of almost $2bn, of which 13 are for South-East Asian owners. Of the 15 contracts agreed in 2014, 60% of these are for Asian owners. Although these units will be capable of operating internationally, indications from owners including Teras Offshore, Swissco Marine and East Sunrise Group hint at a South-East Asian target market. There is a large fleet of mid-sized supply vessels in the region and historically these units have worked similar roles to the SEP fleet. However, the mid-sized supply vessel orderbook has diminished from around 200 units in 2012 to the current total of around 70 vessels, potentially supporting future deployment of SEPs in the region.

Lifting Expectations

An abundance of shallow water fields and relatively benign conditions means that South-East Asia is a region with strong potential for the future deployment of SEPs. Despite a lack of historical deployment, the attraction of competitive day rates in comparison to support vessels has reportedly begun to attract interest, in turn leading to investment in newbuild units from Asian owners.

So, a reduced orderbook for mid-sized supply units and an expected increase in field developments within China and South-East Asia could be positive news for SEP owners. Whilst still way below levels of deployment in the Gulf of Mexico, this region could provide impetus to self-elevating platform demand in the future.

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