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Offshore drilling also results in demand of MSVs. There are specialized vessels used during field development and skills where multiple tasks are required. They are used to carry out seismic surveys, laying underwater pipelines, well intervention, fire fighting, etc.
The offshore vessel industry is a specialised industry. OSV markets are largely dictated by oil price. That’s the single factor that could tilt the demand and supply in the OSV market either ways. However, offshore vessel industry is less cyclical compared to shipping industry. Earlier, offshore vessel industry was characterized by a fragmented ownership (large number of players with few boats) and low barriers to entry. But with increasing asset price, complexity in the performance of vessels due to multitasking, technologically sound needs for these vessels, the entry barriers for newer players have become high. The daily charter rates of these boats involved in offshore drilling are determined primarily by oil prices, and then supply/demand, the kind of boat, the type of contract (spot or long term) and the region of operation (harsh conditions in regions like North Sea are secondary criteria depending on which the day rates are shaped.
New vessels with deep water capability have a distinctive advantage over older ones; they command higher day rates and higher utilization rate.
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Demand Drivers: |
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The demand for offshore vessels is driven by oil prices, production platforms, operational drilling rigs, day rates and fresh E&P activity. It is estimated that a floating platform requires services from 2 offshore vessels, whereas a fixed platform needs only one vessel every 10 day. Knowing the number of existing and future platforms gives a fairly accurate estimate of future demand for offshore vessels.
The pervasive practice makes it evident that AHTSV are calling the shots for now, since its number employed by the companies is significantly higher than the PSVs. The prime reason is that offshore activity is still treading in shallow water, which favors small and mid-sized AHTSVs. Asia and Middle East are primarily small-AHTSV markets, whereas Australia, Far East and portions of Southeast Asia have started acquiring AHTSVs with greater bollard pull. With deepwater activities being the next keyword in E&P sector, demand is more for new generation vessels with high capacity and technologically adept. An analysis of the order-book shows that a vessel like AHTS which can do anchor handling/towing and supply, is preferred over an AHT, which can only do anchor handling/towing.
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Similarly, offshore vessels with high engine power (more than 8000BHP), winch pull (> 250 tonnes) and dynamic positioning systems are now preferred.
The offshore vessel whose demand has increased the most is the Multipurpose Supply Vessel due to its ability to multi-task, and it reduces the total number of vessels needed to complete an offshore job.
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Offshore Vessel Fleet Profile: |
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OSV market is predominantly occupied by two types of vessels. Supply vessels represent 86% of the global fleet and the rest is occupied by Construction vessels. Supply vessels, further, are categorized into AHTSV, AHT and PSV. AHTSV eats up 53% of this segment, PSV’s presence is 40% and AHTs come in for the remaining picture. For the Construction vessel, ROV Support Vessels and Pipelay vessels make up more than half of the Construction Vessel pie.
Following chart shows the age break of entire gamut of Offshore Vessels, comprising supply vessels, construction vessels, pipe laying vessels, crew barges, etc.
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Of the global offshore supply fleet, almost 40% of the vessels are beyond 25years of age, and 14% fall between 10 years and 25 years. The total average age of global supply fleet is 14.2 years. As can be seen in the chart, about 48% of the current fleet is 48 years of age and another 9% fall between 20 years and 25 years. After 20 years, the operation and maintenance cost of offshore vessels increases.
Offshore vessels contain sophisticated equipments and machinery on board. Working in harsh environment, these machinery incur extensive wear and tear leading to increase in break down and increase in operation and maintenance cost.
E&P companies therefore tend to employ younger offshore fleet. But in case of unavailability of new offshore vessels, sometimes they have to settle with what is available.
The global PSV fleet average age 13.7 years, whereas the AHT and AHTS fleets have average ages of 14.1 years and 15.4 years respectively. MSVs are fairly young with an average age of 13 years.
The fleet ownership is highly fragmented with the top 35 companies owning just above 50% of the total fleet by number. Top owners include Tidewater Marine, Edison Chouest, Bourbon, Dockwise NV, etc. As of July 2010, Indian supply fleet (AHTSV, PSV) consisted of 101 vessels. In addition, close to 31 foreign flagged vessels are operating in Indian water. |
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Offshore Vessel Orderbook Analysis: |
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Due to the oversupply bane, very few new-builds are being ordered. Add to that the annual attrition rate of 2% - 4%, and the widespread cancellations of the new-build to avoid reaching saturation, affecting maneuverability. Industry is moving towards adopting multifunctional vessels, that has led to lower demand for AHT, and soon, even small AHTSVs would be meeting the same fate, leaving the void to be filled by big AHTSVs and PSVs. This claim is reflected in the order-book pattern where against 12 AHTs, around 305 AHTSVs and 195 PSVs are on order. |
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Future Outlook: |
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With recovering oil prices and rising E&P activities, the future seems secure for offshore supply vessels on the demand side. With 41% of deepwater acreages already under exploration and about 50% yet to be offered at programs like NELP, there will be an increasing demand for deep sea capable offshore supply vessels, as future exploration is going to be mainly in deep seas.
On the supply side, about 1000 new vessels will enter the market over the next 3-4 years. Taking into account newbuilds and possible demolitions of vessels over 25 years of age, the fleet is likely to shrink substantially.
With the widespread realization that deepwater and ultra-deepwater is the way to go, AHTs and small-sized AHTSVs, which serves jack-ups and which are used in shallow-water E&P activities, will eventually be replaced by high-spec AHTSVs and PSVs. And the rising industry demand would make sure that the transition is made sooner.
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To mitigate the oversupply nuisance, OSV operators have either already taken pre-emptive measures, or are on the verge of doing so. The oversupply situation will be transient in nature, and the market is poised to find a balancing act in a couple of years’ time. In addition, the phasing out of the aging vessels would also shrink the fleet numbers substantially.
This will help reduce the overcapacity and increase day rates. The demand will still be met, because modern offshore vessels can do the same work as 2 or 3 older vessels.
Deepwater territories of West Africa and Arctic region are the frontiers that major E&P players would be eyeing.
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