In International Shipping News 03/02/2016
April ICE Brent crude settled at $34.24/b Monday. “There will be recovery when oil prices stabilize, excess inventory of offshore vessels is absorbed, companies and banks write down substantially, and recapitalization gains momentum,” he said.
Weak crude oil prices are taking a toll on demand for offshore vessels and rigs, badly hitting investments in the sector, increasing idle capacity and prompting some owners to scrap equipment earlier than usual, industry executives said Tuesday.
South Korea’s Hyundai Heavy Industries, the world’s largest shipbuilder by revenue, last month temporarily shut one of its two factories making offshore oil rigs due to a lack of demand.
“There is a steep decline in demand for offshore rigs, and the global rig count was down over 40% last year,” Jon Fredrik Muller, senior project manager with Rystad Energy, said in an interview. Rystad is a Norway-based oil and gas consultancy.
Beyond weak demand, another major concern to the offshore oil drilling industry is the long list of rigs under construction that were ordered when oil prices were booming and will enter the market in the coming years.
There is an order backlog of 61 floating rigs — those operating in up to 12,000 feet of water — and 112 jackup rigs — those operating in up to 400 feet of water, Muller said.
He said some of those orders will likely be canceled, but buyers will most try to delay taking delivery as long as possible. Typically, there is a four-year period between ordering and taking delivery of an offshore rig.
Muller said owners are also finding it difficult to employ their rigs. He said about 80 floating rigs and 170 jackups that are stacked or idle.
Some owners are mulling retirement or scrapping of their rigs years earlier than usual.
Last year, around two dozen floaters and 21 jackups were retired, Muller said.
The average age of retiring floaters fell to 32 years, from 37 years in 2014, though the average age of retiring jackups remained around 34 years, he said.
Around 299 rigs were ordered over 2011-2014, when oil prices were sharply higher, including 187 jackups and 112 floaters, Hassan Basma, CEO of HBA Offshore, said at the Marine Money conference in Singapore last week.
Now cancellations will accelerate, causing loss writedowns to balloon, Basma said. “The question being faced by the offshore drilling industry is whether the [outlook] is bad, very bad or disastrous,” he said.
However, Muller said prices of offshore rigs have declined in tandem with falling crude prices. “It is a good market to acquire or lease offshore rigs as prices are down 30%-50% in various segments in the last 18 months,” he said.
Globally, there are now several tenders for offshore drilling activity, though not all translate into actual business. The downturn that started in 2014 is expected to continue through this year, and the market may bottom out only next year, he said.
THIN DEMAND FOR FPSO, FSO VESSELS
Demand for floating production, storage and offloading vessels and FSO vessels is also weak, industry executives said. “FPSO orders are at a historical low, only four new units were ordered last year, all in the first quarter,” David Boggs, managing director of Energy Maritime Associates, said at the conference.
Of the 277 FPSOs and 96 FSOs, around 26 are currently idle, Boggs said.
There is an order book of another 72 new FPSOs and FSOs, of which around 20 will be delivered this year, including one for LNG, Boggs said. “With oil prices declining around 35% last year, hardly three or four new FPSO, FSO orders are likely to be made in 2016 and mostly in the second half,” he said.
FPSO orders are at their lowest since 2003, when oil prices fell to similar levels around $30/barrel, Basma said.
Source: Platts
