Busy year ahead for marine support

By: David Manuel, OSV market analyst at IHS Markit

The region’s requirements for anchor handling tugs (AHT), anchor handling tug and supply (AHTS), and platform supply vessels (PSV) have seen steady growth in 2017. The year marked the most improvements in terms of demand and utilisation since offshore activity slowed down post-2014 oil price crash. According to data from MarineBase by IHS Markit, vessel term charters or contract fixtures lasting more than 30 days had increased to around 322 vessels in 2017 compared to an average of 285 vessels from the previous year. Offshore supply vessels (OSV) utilisation rose from the lows of 48 per cent to 55 per cent during the year, but slowed down to 46 per cent before the end of the year due to seasonal factors when most charters conclude and work schedules completed.

Construction support buoys marine activity

The surge in the Middle East offshore activity last year was prompted by a high demand in marine support for offshore construction. Many field development campaigns went on-stream as national oil companies took advantage of the low-cost environment. Since the downturn, a stream of offshore EPCI (engineering, procurement, construction and installation) projects was rolled out by NOCs, supporting OSV demand.

Saudi Aramco has been leading the way in the tendering and contracting activities, creating a firm pipeline of activity for field development projects. Aramco awarded a total of 18 offshore EPCI projects from 2015 to November 2017, as part of its Maintain Production Potential (MPP) and fast track projects, most of which are focused on developing and maintaining Marjan, Zuluf, and Safaniyah fields.

In Abu Dhabi, ADNOC awarded seven major EPCI contracts from 2014 until 2016. Several marine terminal projects were also awarded in Kuwait, Bahrain, Egypt and Saudi Red Sea, mainly to South Korean contractors.

Despite weaker drilling activity during the period, OSV demand on the other hand, remained firm in the offshore construction segment. The AHT and AHTS classes are core fixtures in a marine spread dedicated to support pipelaying, platform installations, and subsea support work scopes. Based on MarineBase, a total of 71 OSVs were chartered for construction support last year, an increase from 50 vessels fixed in the previous year.

Another busy year ahead for OSVs

Demand for OSVs in the Middle East is expected to see a similarly robust year ahead. In the coming months, short-term activity will be driven mainly by marine construction support charters, many of which are anticipated to begin by the end of the first quarter of 2018. Saudi Aramco has more than 100 offshore platforms under construction, projects set for installation from 2018-2020. These projects were awarded to: Dynamic Industries, Larsen & Toubro and its partner EMAS Chiyoda Subsea, McDermott International, Abu Dhabi’s NPCC, and Saipem.

McDermott alone is scheduled to mobilise four of its derrick pipelay barges to Saudi this year. The barges would each need a dedicated marine support spread of about five vessels comprising AHT, AHTS and PSVs among others. Younger, powerful and versatile AHT and AHTS classes will be in demand while DP-2 PSVs will be a basic requirement.

Moreover, the start-up of newly awarded five-year contracts from Aramco for six PSVs and nine AHTS recontracts are expected to further contribute to utilisation rates in the coming months.

Improving sentiment but overcapacity lingers

But while OSV demand continues to improve, marketed supply has exceedingly outpaced available demand. Daily charter rates remain poor since bottoming out to current breakeven levels. Oversupply continues to build up to record highs, placing the Middle East with the second largest OSV tonnage. MarineBase by IHS Markit shows a total of 640 vessels currently working in the region as of end-January. The increasing capacity is exacerbated by newbuild acquisitions and ongoing vessel relocations from Southeast Asia to the Middle East.

Day rates will remain under pressure over the long term, unless a concerted, realistic, and effective approach to removing excess tonnage is achieved by the sector.

MarineBase by IHS Markit is an online service, providing data, market intelligence and analysis about the global offshore supply vessel fleet. It tracks over 3,500 PSVs and AHTS vessels worldwide.