Offshore Markets:Further Positive Prgres

Offshore Markets: Further Positive Progress 0" class="ng-scope" style="box-sizing: border-box;"＞By Stephen Gordon

16 September 2022
Offshore markets continue to progress, with the Clarksons Offshore Index increasing to levels last seen in 2015. Extracted from our recently released Offshore Review & Outlook, this week’s Analysis reviews continued energy market volatility, the impact of the Russia-Ukraine conflict, macroeconomic headwinds, tightening rig and vessel sectors and rapid growth in offshore wind.
Energy Market VolatilityOffshore markets continue to make positive progress, with the Clarksons Offshore Index (our dayrate index covering Rig, OSV and Subsea) reaching 81, up 27% since start-22 and 62% since start-21, to reach levels last seen in 2015. Macroeconomic concerns aside, sentiment is positive that strength will continue, supported by improved activity and a supply-side constrained by a small newbuild orderbook and removals over the last decade. Offshore wind has continued its rapid growth phase, with robust capacity growth, high peak season utilisation in Europe and a continued wave of next-generation newbuilds.
Energy pricing has been supportive of offshore activity this year. Oil prices have spent most of the period since the start of the Russia-Ukraine conflict above $100/bbl. Lack of oil supply has supported pricing, given Western moves to reduce imports from Russia and OPEC output shortfall relative to quotas. However, prices dipped below $90/bbl in September, given concerns over economic headwinds. Meanwhile, gas prices for the European winter have again reached records as Russia has cut off pipeline gas to various countries. Security of energy supply concerns are stimulating accelerated investment in both offshore oil and gas and offshore wind.
Offshore oil and gas is 16% of global energy supply (offshore wind is 0.3%) with offshore oil production expected to grow by 2.1% in 2022 to 24.8m bpd (27% of global oil output) and offshore gas production projected to grow by 3.7% to reach 128.0bn cfd (33% of global gas). Offshore markets themselves have limited direct exposure to Russia (only 6% of Russian oil and gas is offshore). Capital commitments to new oil and gas project FIDs totalled $50bn across Jan-Aug 2022, and to offshore wind projects $9bn (both a slower run-rate y-o-y). However, both sectors are also expected to see a number of larger projects make progress before year end (though risks remain). Our full year forecasts are $91bn for oil and gas project FIDs and $29bn for offshore wind.
Sectors StrengtheningRig markets have made good progress. Jack up utilisation is up by 8 points y-o-y to 86%, whilst floater utilisation has gained 11 points to 84%. Action to remove surplus assets during the prior downturn and then Covid-19 disruption period is now paying off, with improving demand meeting a lack of “hot” supply. This has resulted in higher dayrates (the US GoM UDW floater assessment is up 57% y-o-y to $390-440,000/day), plus interest in the “stranded” orderbook and reactivating cold-stacked units. By end-2023, we project utilisation of 90% (jack-ups) and 93% (floaters).
OSV markets have also made further gains since Mar-22 and demand is now 21% higher than its low point in 1H-20. This has prompted term rate improvement in most regions, with our OSV Rate Index up 20% in 2022 to 129 points. Our projections suggest continued progress in utilisation and dayrates. Reduced supply boosted North Sea AHTS spot rates (although only directly relevant to a small fleet) to record levels in July-22.
The subsea support sector has also improved strongly this year with mid-year utilisation at 82%, the strongest since the 2014 downturn, and dayrate assessments have also made significant gains. The outlook for MOPU project awards also remains positive, with 7 awards in 2022 ytd and 9 further awards expected this year. Redeployment activity has also been strong for MOPUs (9 awards) and FSRUs (12 awards, majority to serve European need to replace Russian gas).
Energy In TransitionDespite recent focus on security of oil and gas supply, the global energy transition remains vital to combat climate change, and offshore wind will play a key role. 2022 start-ups (8 GW projected) will be slower after a rush to meet a Chinese subsidy deadline boosted 2021, but the overall trajectory of growth in capacity installations towards our projection of 242 GW in 2030 remains strong. Accordingly, newbuild ordering of wind assets has continued, with 19 WTIVs confirmed in 2022 plus 14 C/SOVs with pressures on the wind “fleet” to be as “green” as possible. The focus on technology to reduce the emissions profile of the offshore fleet itself continues, as it does for drilling rigs and production platforms. Eventual newbuild orders are likely to feature alternative fuels. Efforts to retrofit batteries on existing units (particularly PSVs) have also continued.
Concerns around the short-term global economic outlook, and the impact on energy demand, investment sentiment and government policy, continue to grow. For the moment however, the offshore sector is still building on the positive trend which began in 2021. Improving activity and the impact of multi-year fleet consolidation, alongside a heightened focus on energy security, suggest a positive medium-term outlook. $中海油服(sh601808)$