Offshore

Offshore in 2022

Leaving behind an overall better year for the offshore sector, Splash investigates if growing optimism and market confidence can push the trend towards a busier market in 2022.

When it comes to offshore in 2021, it is fair to say that owners have enjoyed better fortunes than they did in 2020, with more and more players believing that the worst is behind the sector rather than ahead.

Starting off with the key driving factor behind the growth of the offshore market, oil and gas investments are set to increase 7%, from $145bn in 2021 to $155bn in 2022, while wind is closing in and is anticipated to surpass them in several key markets by the end of the decade, energy intelligence firm Rystad suggests.

There is a sense of cautious optimism for further rate and utilisation improvement


Seismic

The seismic industry, as one of the first in line when it comes to offshore oil and gas exploration, made its comeback last year. The contract backlogs of many seismic companies grew at decent levels through 2021, giving them enough activity to support operations through 2022.

“We expect the performance of seismic players as a whole to improve as global exploration spending is forecast to increase at a modest pace in 2022 – at a time when many players are exiting the seismic industry and others reposition their operations for the energy transition,” says Binny Bagga, energy service research vice president at Rystad Energy.

Rigs

The offshore rig market also saw a resurgence in activity in 2021 due to significant attrition (44 units retired in 2021), few new deliveries (seven units) and companies still being conservative with reactivating cold stacked capacity. According to Rystad Energy analyst Eivind Drabløs, demand is expected to increase in both the deep-water and shallow-water segments this year as the market is eyeing a return to where it left off in 2019.

“The growth is driven by high demand in several key floater markets, and especially the Middle East on the jackup side. We also expect rig rates to improve this year for most rig types, driven by increasing utilisation and the strong oil prices we are currently seeing,” Drabløs tells Splash, adding: “The market needs longer contracts, even more consolidation and additional scrapping to bring pricing power back to the contractor.” 

Drabløs observes the beginning of a tight rig market over the next few years. “As operators continue to lock in units, drilling contractors have begun mergers and acquisitions activity and subsequent cost synergies lead to even more attrition in the global fleet.” To remind, the merger of Noble and Maersk Drilling will this year create the third-largest offshore rig player.

Even though the tide may be turning for the offshore rig market, Drabløs reckons there won’t be too many cold stacked reactivations or newbuilds delivered over the next few years, as contractors that have recently exited bankruptcy will likely be reluctant to add debt back onto a clean balance sheet.

FPSOs

There are around 80 offshore oil and gas projects worth a total of $85bn in the global approval pipeline for 2022. Of these, 10 are floating production storage and offloading units (FPSOs) set to be awarded this year. The FPSO market saw a strong finish to 2021 and almost brushed off the pandemic’s effect, driven by seven contract awards in Brazil, which is expected to continue driving the market in 2022, with an additional three FPSOs.

OSVs

The increase in activity is also driving demand for offshore support vessels and according to the latest report by Oslo-based shipbroker Fearnley Offshore Supply, going into the last quarter of 2021, the market has been fairly tight. Compatriot Seabrokers notes that OSV owners, particularly in the North Sea region, have been growing steadily more bullish with their rate expectations in recent months, with average fixtures comfortably higher year-on-year, so they will be hoping for further increases in 2022. 

Mike Meade, founder and CEO of the M3 Marine Group, one of Asia’s largest independent offshore shipbroking and marine consultancy houses, believes the battered offshore sector has finally bottomed out with post-pandemic recovery already observed in Q4 2020 and promising times ahead reflected by both the fleet shrinking and the increased volume of announcements for new site developments.

“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),” Meade predicts.

Good quality and newer tonnage will be harder to come across


Arvind Mohan, 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,” Mohan 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 Oran Creedon 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 Stephen Gordon, 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’s Mohan.

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 Meade, 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,” Meade adds.

When it comes to newbuildings, Mohan 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 Mohan.

Cautious optimism 

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 Mohan, 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’s Mohan concludes.

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