“Further FIDs into 2022 and a resumption of drilling and maintenance will see these gains continue and with the oversupply of vessels petered out by demolition, removals, sales into Chinese renewables and ‘defacto scrapping alongside’ of laid up older vessels, is seeing a healthy move towards higher utilisation with rates following (upwards),” Founder and CEO of the M3 Marine Group predicts.
Managing director of Singapore-based offshore vessel manager Viridian Maritime, asserts that all tell tale signs certainly point towards market recovery as there has only been a minuscule injection of newbuild tonnage within the offshore sector for several years now.
“Utilisation has been increasing, but it remains to be seen if rates can improve sufficiently for the sector to gain newbuilding momentum. Vessels which have been laid-up and cold stacked for years are no longer relevant and many are being acquired at highly reduced price levels, some either for scrap or operating in regions where the rates dictate lower operating costs,” Managing director of Singapore-based offshore vessel manager Viridian Maritime observes.
The subsea support vessel market has seen strong improvement in 2021, having moved past the Covid-19 induced weakness of 2020. The re-emergence of inspection, maintenance and repair (IMR) activity and increased walk-to-work requirements have both supported multipurpose support vessel (MPSV) demand last year with the sector looking ahead to increasingly optimistic sentiment for 2022, Clarksons Research analyst finds.
Clarksons Offshore Index, that covers rigs, OSV and subsea, reached 63.6 by year-end, up 24% year-over-year, which is the highest since September 2015.
“Offshore markets made real progress in 2021, benefiting from the improving oil price, improving offshore activity and the impacts on fleet supply of further restructuring and consolidation. There is a sense of cautious optimism for further rate and utilisation improvement,” says the managing director of Clarksons Research.
Renewables and vessels for the next frontier
The renewables market is a fast-growing sector within the industry. Rystad Energy analysts believe that for offshore contractors, the energy transition could be advantageous as wind power development spending could rise to $70bn in the next three years. Looking further into the future, classification society DNV has worked out that around 90% of construction vessel capacity will provide services to offshore wind projects in 2050.
“With some operators pivoting their fleet towards offshore renewables, there are more opportunities to be explored,” observes Viridian Maritime.
M3 Marine’s Meade remains true to traditional offshore, stressing that the world will need oil and gas for many years to come and that investments should be directed towards improving this sector.
“I truly believe in climate change and am a supporter of the energy transition by bringing renewables into the energy mix, but, in my lifetime, I really can see around 80% of energy demands coming from oil & gas as we move forward. The sooner governments wake up to that fact and the banks too the easier it will be for energy-based service companies to get finance and focus on what the oil & gas industries can do to make their energy supplies more carbon neutral.”
Offshore support vessel owners are working on strategies to help them operate their current fleets more efficiently and differentiate themselves from their competitors. Equipping the vessels with battery technology has emerged as one of the most realistic choices in this circumstance. As a result, battery-hybrid offshore support vessels are likely to present considerable potential for owners and operators of offshore support vessels in the years to come.
For M3 Marine Group, the question one must ask is when will the newbuilding of replacement vessels for a now aging fleet start? In his view, it won’t until the industry gets its head around what fuel it is going to burn. “Watch out for an increase in batteries (hybridisation) and the use of LNG as a transition fuel in the near to medium term,” M3 Marine Group adds.
When it comes to newbuildings, Viridian Maritime says that while the offshore fleet has been gradually aging, few owners are able to renew their fleets. A key challenge for him in 2022 and beyond will be sustainability and carbon neutrality.
“2021 brought about a drastic change in the overall supply chain in the offshore sector, from efficiency within operations as well as in managing and reducing emissions, at least with the major international oil companies. This will remain the focus of the future, and how all this pans out will need to be seen, whilst adoption of eco fuel or systems on a wider basis remains a challenge to overcome, albeit brings about an exciting time ahead,” predicts Viridian Maritime.
There are reasons to be cautiously optimistic in 2022 and beyond, with the expected increase in capex spending in oil and gas as well as renewables, which will, according to Viridian Maritime, have a cascading trickle down effect with higher demand for offshore support vessels.
“Oil prices have also seen a decent and robust recovery over the course of 2021, the key now would be for it to remain steady at these levels. This, combined with a tighter supply of active tonnage, points towards better optimism running the course of the year. This is further exacerbated as good quality and newer tonnage will be harder to come across, thus moving towards higher utilisation for existing tonnage and hopefully healthier day rates, as leverage for negotiation with customers increases,” Viridian Maritime concludes.