Archives for posts with tag: oil price

As recent history demonstrates, if the global oil supply-demand balance moves from a deficit of supply to a surplus, or vice versa, the effect on oil prices and hence the offshore sector can be far reaching. At present, as 2019 draws nearer, oil demand and supply look to be increasingly finely balanced. However, there are still a range of uncertainties that could significantly shift the current oil supply-demand outlook.

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

Although some indicators seem to suggest that the offshore markets have now bottomed out, most segments of the ‘cradle-to-grave’ offshore fleet are still facing significant challenges, often due to persistent vessel oversupply. One more positive sector though has been FPSOs, which is largely project driven and which has been supported by a rise in FIDs. So what is the outlook for FPSO contracting to 2020?

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

2018 so far has been a year of firming oil prices. Despite continued strong output growth from US shale, the crude price has risen, with Brent even topping $80/bbl, fuelled by political risk: Venezuelan instability, North Korea and sanctions on Iran. Supply outages, plus higher prices muting demand, have hit the tanker market. However, the flip side has been more positive indications (at last) in the offshore sector.

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

 

After an extremely challenging 2016, parts of the offshore sector had a less harrowing year in 2017. Oil prices, though volatile, trended upwards, offshore project sanctioning picked up and there was a sense that perhaps some charter markets were starting to bottom out. That being said, it was still another very challenging year for the offshore fleet and owners will certainly be looking for improvements in 2018.

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

The North Sea and even more so the frontiers west of the Shetlands and in the Barents Sea are known for their often challenging operating conditions of rough seas, stormy skies and limited visibility. Unfortunately, the native climate could be seen as something of a metaphor for the region’s offshore markets at present, though a keen observer might spy mercurial signs of fairer weather on the distant horizon…

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

Now that half the year has passed, a review of offshore project sanctioning might be timely. Activity has picked up in 2017, especially for larger projects with CAPEX allocations of at least $500m. The uptick in FIDs has coincided with improved E&P budget guidance from many IOCs. So oil price volatility notwithstanding, could this be an sign of generally improving prospects for larger offshore projects?

Large Projects On The Rise

Offshore field project sanctioning reached a peak of 120 FIDs in 2012. Since then, sanctioning activity has been under pressure from a range of factors, most notably the weaker energy price environment that has prevailed since 2H 2014. Indeed, oil company E&P spending cuts induced by the falling oil price in 2015 precipitated a 33% decline in FIDs that year. Larger projects (with an estimated CAPEX of at least $500m) have been hit the worse, with the number of such developments in 2016 to receive an FID down by 60% on 2012. In comparison, the number of smaller projects sanctioned in 2016 was down by a less severe 32% on 2012.

However, 2017 is (so far) looking rather more promising: 31 offshore field projects received FIDs in 1H 2017, of which 48% were larger projects. Among these were Coral FLNG Ph.1 ($7bn), Leviathan Ph.1 ($3.75bn), Liza Ph.1 ($3.2bn) and Njord A Upgrade ($1.6bn). FIDs have been stimulated by the higher (albeit volatile) oil price, as well as by successes in reducing offshore project costs (by around 30-40% on start 2014, on average).

Small Runs Rule

That being said, while it is true that sanctioning of larger projects seems to be on the rise, it is important to note that many such projects (including all those named above bar Liza Ph.1) were conceived pre-downturn and were on the verge of obtaining an FID in 2014. This implies that the recent uptick in large-project activity may not be sustainable, especially as the backlog of such projects continues to fall. Indeed, the history of start-up delays and cost over-runs at mega-projects such as Kashagan Ph.1 ($48bn) and Greater Gorgon Ph.1 ($55bn) had already prompted operators to rethink the viability of larger offshore projects even before the oil price downturn. Onshore US basins are also potentially problematic for offshore projects, insofar as they compete (quite effectively) for scarce investment dollars.

Efficiency Matters

As a result of these considerations, operators have been downsizing many of the other large-scale projects planned prior to the fall in the oil price. Browse is set to use two FPSOs instead of three FLNGs, for example, while Bonga SW “Lite” now entails an FPSO with a processing capacity 33% smaller than before. Many operators are also placing more emphasis on subsea tiebacks to existing facilities, instead of major new offshore hubs (even if this means lower production volumes). Adapting to the potential “lower for longer” oil price outlook thus seems to be a priority for many upstream players.

So although FIDs at larger projects have picked up, looking beyond the backlog of projects from before the downturn, such developments seem to be less in favour. Scratching the surface, small projects are at least an offshore outlet for upstream investment and in the long run, perhaps cost savings cemented post-2014 might make large projects more competitive.

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In last year’s half year shipping report, we reported on an industry that “must do better”. With the ClarkSea Index averaging $10,040 per day in the first half (up 2% y-o-y but still 14% below trend since the financial crisis) there are still many subjects (sectors) struggling for good grades as our Graph of the Week shows. But are there some that are showing a bit more potential?

Don’t Rest On Your Laurels!

A year on from record lows, bulker earnings remain below trend (defined as the average since the financial crisis) but are showing signs of improvement. Capesize spot earnings moved from an average of $4,972/day in 1H 2016 to $13,086/day (75% below trend versus 33% below trend). Indeed, based on the first quarter alone, Panamax earnings moved above trend for the first time since 2014 and we have certainly seen lots of S&P activity. The containership sector has responded to the Hanjin bankruptcy with another wave of consolidation (the top ten liner companies now operate 75% of capacity) and some improvements, albeit with lots of volatility, in freight rates. Improved volumes, demolition and the re-alignment of liner networks, helped improve charter rates and indeed feeder containerships rates have moved above trend for the first time since 2011. Although some gains have been eroded moving into the summer, fundamentals for both these sectors suggest improvements in coming years but it may be a bumpy road!

Dropping Grades!

After solid marks in last year’s reviews, the tanker sectors tracked here have moved into negative territory compared to trend, with the larger ships feeling the biggest correction as fleet growth, particularly on the crude side, remains rapid and oil trade growth slows. Aside from a small pick-up in the LNG market in recent weeks, the gas markets remain weak, with VLGC earnings 42% below trend. Some increased activity, project sanctioning and investor interest has not yet taken offshore off the “naughty step” .

Still Top Of The Class?

The only sector significantly above trend for the first half is Ro-Ro, with rates for a 3,500lm vessel averaging euro 18,458/day, 42% above trend. There also continues to be strong interest in ferry and cruise newbuilding (the 2 million Chinese cruise passengers last year, now 9% of global volumes, is supporting a record orderbook of USD 44.2bn, as is the interest in smaller “expedition” ships). We must also give a mention to S&P volumes that are 60% above trend (51m dwt, up 50% y-o-y) and to S&P bulker values which improved 25% in the first quarter alone.

Showing Potential?

Upward revisions to trade estimates have been a feature of the first half, and we are now projecting full year growth of 3.4% (to 11.5bn tonnes and 57,000bn tonne-miles). Although demolition has slowed (down 55% y-o-y to 16m dwt), overall fleet growth of 2.3% is still below trend but an increase on 1H 2016 (1.6%). While there has been some pick-up in newbuild ordering to 24m dwt (up 27% y-o-y), this remains 52% below trend. Last year we speculated on an appointment with the headmaster – still possible but perhaps this year extra classes on regulation and technology? Have a nice day.

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