OffshoreRenewables

Offshore in 2023: Reasons for optimism

An increase in capex spending in oil and gas as well as renewables, combined with a tighter supply of active tonnage, continues to point towards greater optimism for the offshore vessel market over the course of the year.

The offshore sector maintained its path to recovery in 2022, with the Clarksons cross-segment rate index, which covers rigs, offshore support vessels (OSVs) and subsea construction vessel dayrates, up 32% to a post-2014 high of 84.

Going into 2023, market analysts project the industry will continue its momentum from 2022 and improve further.

Oil and gas

In what will most likely for many more years remain a traditional market for offshore vessels, Fearnley Offshore Supply’s Jesper Skjong said he expects investment, activity, dayrates, and utilisation to see a further boost this year backed by persistently high oil prices and pre-pandemic energy demand levels.

“As more production facilities are set to come online throughout the year, both fixed and floating, and the base of infrastructure grows further, especially subsea infrastructure, the demand for most offshore support vessel types is expected to increase further,” Skjong said.

The market analyst of the Oslo-based shipbroker tells Splash he has observed a significant vessel supply crunch, especially that of the active fleet, which could help the market to develop further in favor of the shipowners this year “with no orderbook to speak of and a significant portion of the still laid-up fleet considered non-commercial”.

Joshua Belo-Osagie, offshore energy markets analyst at UK-based consultancy Maritime Strategies International (MSI), said he is also expecting 2023 to represent another robust period for the offshore marine supply chain

“Many of the themes (commodity prices, upstream investments, dented supply side, a shrinking orderbook, and a substandard laid-up fleet) underpinning the uplift in utilisation and earnings across all segments in 2022 are unlikely to retreat this year,” Belo-Osagie noted.

He said firm activity in deepwater Golden Triangle regions will continue to back demand in the large AHTS and PSV segments, with an anticipated 17% and 9.5% uptick in vessel demand this year, respectively. “Our view is that ultradeep and deepwater regions will serve as a principle source of incremental non-OPEC barrels in the long-term, particularly as US shale output shows signs of weakening.”

According to Clarkson’s recent report, overall offshore rig markets tightened significantly in 2022, as 11% growth in demand supported a 7-point increase in utilisation, with rig utilisation projected to reach 93% in the coming years.

Research carried out by analytics firm Intelatus Global Partners, supports these views, with director Philip Lewis observing a particularly hot subsea vessels market, which will most likely continue on the back of higher oil & gas prices and China opening up post covid and lifting demand.

On an operational note, Lewis observed that in certain markets, such as Norway, there’s increasing demonstration and adoption of low and zero carbon fuel technologies – battery energy storage, biofuels, fuel cells and potentially dual fuel engines.

For Lewis, leveraging industry 4.0 technologies/digitalisation will become a differentiator for some owners – used for a wide range of requirements, such as fuel management, condition-based and predictive maintenance and even remote operations driving lower crew costs. “We anticipate that the chief digital or information officer will be an increasingly important management role in larger OSV companies, as owners invest in digitally transforming their businesses,” he said.

On the financing side, Lewis pointed out that OSV owners are not without their challenges as many industry players as well as financial institutions continue to carry the financial scars of historical poor markets. “Traditional oil & gas vessels will increasingly not meet “green” finance and insurance criteria as banks and insurance companies seek to bolster environmental credentials. In an industry still characterised by spot charters and termination for convenience on long-term charters, it will be interesting to see who has the appetite for investing in and financing new vessels,” he argued.

Intelatus warned that the supply of competent, qualified and cost-effective crew will also become an increasing challenge for OSV owners as years of wage pressure linked to low utilisation and market rates has seen people leave the industry. Lewis reckons that increased digitalisation could be one potential solution to, in part, address the situation.

Offshore wind

Massive investments are projected before the end of the decade for ships serving the offshore wind sector. Developers have been rushing to secure tonnage for future projects, leading to last year’s record number of offshore wind newbuild orders with nearly 50 ships, according to data from shipbroker Clarksons.

Fearnley Offshore Supply’s Skjong expected this year to see more turbines and capacity added compared to last year, albeit far fewer than in 2021, but with a shift in terms of park characteristics where a significant number of units will be placed more than 100 km from shore.

“This presents increased vessel demand in several respects, and for the CSOV segment, for example, we could see vessel demand grow more than 30% this year alone,” he said.

Skjong said that despite difficulties last year, there is no shortage of ambition and that 2023 could be “a pivotal year for the offshore wind industry as it moves away from the emerging market challenges and toward commercial scale.”

MSI’s Belo-Osagie maintained a positive outlook on the offshore wind turbine installation (WTIV), commissioning/service operation (C/SOV) and crew transfer vessel (CTV) markets.

“C/SOVs and CTVs will remain on a positive trajectory as their demand is principally derived from the underlying base of installed turbines; vessel availability should not pose a problem as the orderbook continues to grow at a healthy pace,” he said.

Meanwhile, demand in the WTIV and foundation installation vessel (FIV) segments looks to remain relatively flat in both 2023 and 2024, according to Belo-Osagie, who is anticipating the surge in activity to begin in earnest from 2025 or 2026 onward, at which point vessel availability could become a real concern.

“It is increasingly clear that attempts to meet expansion targets under ever tighter time frames may strain the supply chain while laying vulnerable to variable input costs. The success of any future expansion ramp-up depends on the extent to which policymakers, operators, and manufacturers can navigate this,” Belo-Osagie noted.

Inteletus reckoned a sufficient number of vessels in the short term, but Lewis also warns of a shortage of WTIVs and FIVs over the decade and about a risk of overbuilding and building the wrong type of asset, pointing to cable layers where a shortage is also expected.

“Building the right type of vessel is important – taking into account geographic area of operations, specific wind farm transition piece heights, low and zero emissions operations and local content considerations,” he stressed.

Growing wind farm activity sustains CTV newbuild demand and the growing number of large wind farms and clustered wind farms allows developers and OEMs to plan additional SOVs, where the purpose-built SOV/CSOV fleet is currently planned to exceed 85 vessels before 2025.

According to Clarksons Research data, the current global fleet of WTIVs stands close to 80 with little more than 30 commissioning/service operation vessels.

Vessel supply crunch between sectors

With a minuscule injection of newbuild tonnage within the OSV sector for several years now, Fearnley Offshore Supply remains quite confident that the further tightening of vessel supply in the markets is set to continue to drive positive development from the shipowners perspective.

“In fact, for the supply segments, AHTS and PSV, we find that the limited availability of commercial vessels will likely be the main driver for further increased dayrates in 2023 as the alternatives are simply not there,” Skjong asserted.

As for the vessel supply dynamics between offshore wind and oil and gas activities, Skjong said he believes this is also set to tighten as more activity in the subsea sector, “and the far superior economics therein”, will see more vessels committed to this space. Still, Fearnley Offshore Supply’s view is that the vessels segments pulled between these industries should enjoy strong dayrate development throughout 2023.

MSI’s Belo-Osagie has also spotted competition for tonnage in the construction support vessel segment. “Many of these units have been employed as walk-to-work vessels supporting the commissioning of offshore wind farms and partaking in light construction scopes. As the offshore oil and gas market picks up, we think many of these units will return to the traditional business where dayrates are higher.”

Lewis agreed that the biggest competition for vessels by both oil and gas and offshore wind in the short term will be for subsea vessels – and this is expected to continue. He reckons other segments, such a AHTSs, PSVs and heavy lift vessels will continue to find employment in offshore wind, particularly in Asia and the US. However, Lewis observes that offshore wind is rapidly developing fleets of purpose-built vessels, “and thus the use of oil and gas vessels in the wind segment will generally be of a shorter duration.”

Floating wind projects will require large AHTSs, AHTs and MSVs. However, demand at scale is not forecast until the latter part of this decade. “There is a clear sign that supply will be insufficient, given the lack of newbuilding activity on the large anchor segment over the last few years,” Lewis concluded.

Adis Ajdin

Adis is an experienced news reporter with a background in finance, media and education. He has written across the spectrum of offshore energy and ocean industries for many years and is a member of International Federation of Journalists. Previously he had written for Navingo media group titles including Offshore Energy, Subsea World News and Marine Energy.
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