Archives for posts with tag: offshore industry

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.

OIMT201509

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.

OIMT201410

The shuttle tanker fleet consists of a relatively modest 88 vessels, but is of critical importance to the offshore story. The sector has always played a key role in exports from fields divorced from established pipeline infrastructure. As the move offshore into deeper and more remote areas gathers pace, shuttle tankers will be required to support production, particularly off Brazil.

Exponential Growth

The fleet has a long track record of steady growth (it was just 19 vessels at the start of 1989), and has recently undergone another expansion phase, growing from 65 vessels at end 2010 to 88 currently (up 35%). There are 8 vessels on order: until the contracting of three specialised Arctic units at Samsung in July, no orders had been placed since January 2013.

This might appear, on the surface, to be a sign of a fleet sector with muted demand growth prospects, particularly when considered in conjunction with the decade-long decline in North Sea shuttle tanker transportation evident in the Graph of the Month. However, the outlook is actually somewhat brighter. Brazilian usage has gradually increased year on year. Brazilian fields are expected to be at the forefront of the sixty potential field developments identified globally which are likely to use shuttle tankers.

There are now 25 likely future field developments offshore Brazil, which are expected to need shuttle tankers, and potentially add 1.5m bpd to shuttle tanker movements off Brazil. In the pre-salt areas, pipelines are often not feasible due to deep water and long distances to shore, so fields need shuttle tanker offtake from FPSOs.

The North Sea is an established shuttle tanker region, and now one with much activity under way to halt production decline. There are 9 future start-ups expected to require shuttle tankers, including Bream and Johan Castberg. These are expected to help shore up North Sea oil transportation on shuttle tankers to above 1m bpd in the medium term.

Fleet Consolidation

Recent years have seen the fleet become more consolidated. At the end of 2004 there were over 10 companies with just one shuttle tanker to their name but as of September 2014 there are just two companies owning only a single ship. Teekay Offshore and Knutsen NYK continue to account for a large portion of the fleet, owning 32 and 25 units each. This year alone, Knutsen acquired Lauritzen’s fleet of 3 ships: these were the first recorded shuttle tanker sales for over 5 years.

Tread With Caution

Of course, shuttle tankers are not immune to the usual cyclic problems of the offshore industry. In the past 18 months, delays in field start-ups in Brazil and the North Sea have led some companies to let charter options expire or fail to renew existing timecharters. This may limit ordering (typically orders are placed with an initial charter in mind). Over the longer term, however, further fleet expansion will be required to service additional demand. Whilst the graph no doubt shows the ‘best-case’ scenario, and some field start-up slippage will no doubt intervene, the shuttle tanker sector looks positioned for a relatively bright future.

OIMT201409