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Thursday, September 20, 2018

Douglas Westwood News

Oil Off to a Turbulent Start in 2016 -DW

Oil prices have been extremely volatile since the first trading day of 2016 and hit 12-year lows last week with Brent dropping below $33 a barrel for the first time since 2005. The fall in the Chinese manufacturing index, the Saudi-Iran standoff and North Korean nuclear test have all had a significant impact on shaping oil price trends, says market analyst and consultant Douglas-Westwood (DW). Brent crude rose to a three-week high of $38.91 a barrel on January 4 as a consequence of the Saudi-Iran geopolitical risk but these gains were quickly diminished due to concerns over economic slowdown. Rising tensions in the Middle East typically trigger an increase in the price of oil, yet it seems that bearish sentiment elsewhere has prevailed over potential risk.

Lloyd’s Register Sets Its Sights Subsea

Andrew Inglis (Photo: Lloyd's Register)

Eying a subsea sector rebound, Lloyd’s Register (LR) aims to bring its expertise to underwater operations in offshore oil and gas as well as wind farm power generation and submarine cable markets. The provider of integrity, compliance and specialist risk consulting services has launched Subsea Inspection Services, which it said will support underwater inspections of subsea pipelines, assets and facilities to energy companies operating offshore. Managed and coordinated in Aberdeen…

Oversupplied Market Eyes Floating Storage Opportunities

Brent oil price reached lows of $27/bbl in mid-January, but has recovered over the past two weeks to above the $30/bbl mark. Nevertheless, volatility is expected to remain as the market is yet to find a new equilibrium, according to market analyst and consultant Douglas-Westwood (DW). So far, only modest cuts in U.S. shale production have been realized, and global oil supply has continued to increase, DW said. Nevertheless, in spite of the oversupplied market, OPEC – led by Saudi Arabia – continues to pump in order to defend its market share against non-OPEC supply. With a coordinated change in strategy highly unlikely, according to DW, prices will have to remain lower for longer to force the market to reach a new equilibrium.

Douglas-Westwood: Heavy Lifting Lift off?

Heavy lift vessel (HLV) contractors have faced a challenging market in recent years as the low oil price environment combined with a shift towards subsea installation and deepwater activity has seen fixed platform installations decline globally. The number of fixed assets installed in 2017 is expected to be c.45% less than 2014 levels. This has resulted in a troublesome outlook for heavy lift vessels within the market for topside and jacket installation, leading contractors to seek out opportunities in less traditional markets. Two such bright spots are offshore wind and decommissioning – the former being increasingly-attractive as the volume of installed turbines per year grows rapidly and the projects become larger and further from shore.

Heavy Lifting Lift off?

Photo: HANSA HEAVY LIFT

Heavy lift vessel (HLV) contractors have faced a challenging market in recent years as the low oil price environment combined with a shift towards subsea installation and deepwater activity has seen fixed platform installations decline globally, according to a report by Douglas-Westwood. "The number of fixed assets installed in 2017 is expected to be c.45% less than 2014 levels. This has resulted in a troublesome outlook for heavy lift vessels within the market for topside and jacket installation…

Big Spending on Liquefaction Terminals

Capital expenditure (Capex) on global liquefied natural gas (LNG) facilities is expected to total $259 billion over the forecast period 2015-2019, according to the new ninth edition of Douglas-Westwood’s (DW) World LNG Market Forecast 2015-2019, which predicts investments to be 88% larger than during the previous five-year period. Report author, Amanda Tay, commented, “Global LNG Capex witnessed a slowdown in the period 2009 through to 2012, as a result of the global recession. Post-2012, alongside stronger confidence in the global economy and a growing appetite for energy, the industry started picking up and has piqued investors’ interest in LNG projects again.

Offshore Vessel Contractors Re-shaping for a Rebound

File photo: BOA

The announcement on the February 28 of EMAS Chiyoda’s bankruptcy is the latest in a long line of vessel contractors to fall victim to the downturn since January 2015. Multiple companies such as Cal Dive, Ceona, Cecon, Hercules Offshore, Harkand and Swiber have entered into administration, taking a significant number of vessels out of the active fleet. In other cases, internal restructuring measures (e.g. Siem Offshore, Boa Offshore, Deepocean etc.) were/have been in order. While current indicators of subsea activity (e.g.

Consolidation – A Path to Subsea Vessel Sustainability

Graphics: Subsea Vessel Operations expenditure by Sector – 2017-2021. Source: Douglas-Westwood, World Subsea Hardware & Vessel Operations Market Forecast

In recent years, the speed with which newbuild vessels have entered the market has amplified the subsea vessel demand/supply imbalance, says a report by Douglas-Westwood London. This has been further exacerbated by sustained low oil prices, as operators defer the sanctioning of new offshore projects which could have supported vessel utilisation. As a result, the average vessel dayrates declined by an average of 35% between 2014 and 2016. The weak market conditions have meant that many low specification vessels have struggled to hold on to existing charter rates…

Keppel to Deliver Semisub to Floatel

Courtesy Keppel FELS

Keppel FELS, a wholly owned subsidiary of Keppel Offshore & Marine (Keppel O&M) is on track to deliver a fifth high-specification accommodation semisubmersible (semi) to Floatel International Ltd (Floatel) on time, on budget and with a perfect safety record. The semi, which is built to Keppel's proprietary SSAUTM 5000NG design, was named Floatel Triumph during a ceremony held earlier today. It will be chartered by INPEX Operations Australia for work in Ichthys Field, off Western Australia.

Oil Majors Push Offshore Players for 30% Cuts

Tidewater, Inc.’s Dean Edward Taylor plows full steam ahead.

30%That’s the minimum level of capital expenditure cuts facing owners and operators of offshore rigs, vessels and various support services, as they scramble to keep equipment working and their heads above water during one of the worst oil downturns in 30 years. From a high of $108 per barrel in June of last year, prices plummeted roughly 60% as supply surpassed weakening demand, crashing in November to around $44 a barrel. The pricing collapse caught all sectors of the industry and financial markets by surprise, pulling down with it market valuations, quarterly earnings and day rates.

Offshore Accommodation Market Sees Modest Growth

Douglas-Westwood (DW) forecast in its new World Offshore Accommodation Market Forecast that over the period 2015 to 2020 demand for offshore accommodation vessels will average almost 42,000 Personnel on Board (PoB) per year. An increase of 14% compared to the preceding six-year period. Report author, Kathryn Symes, commented, “Despite a peak between 2016 and 2018, the market will plateau towards 2020 as decreasing fixed platform installations and capital expenditure (Capex) restrictions lead to a decline in construction support. “Offshore accommodation units are utilized throughout a field lifecycle in both the operational expenditure (Opex) and Capex stages.

DW: Tomorrow, It’s Surely Nearer Now?

Photo: Douglas-Westwood

A sustained supply glut has maintained Brent oil prices through the first five months of 2015 at some 47 percent lower than the same period in 2014. Industry observers expect low oil prices to eventually take supply out of the market and drive a price correction, noted Douglas-Westwood. So, when will this happen? To-date, supply appears unaffected - latest figures from the EIA indicate that US production has risen almost 13 percent in the last 12 months. Saudi Arabia is much the same, production has hit a record rate of 10.3 mb/d.

Overtonnage Weighs on VLCC Rates

© Jose Gil / Adobe Stock

Freight rates for very large crude carriers (VLCCs) on Asian routes from the Middle East could fall to a new low for the year next week as too many ships chase the number of available cargoes, ship brokers said on Friday. That came as average rates from the Middle East to Asia have fallen close to last year's low. Average rates dropped to around 32.50 on the Worldscale measure on Sept. 23, 2016, equivalent to about 42.75 this year after Worldscale rates were recalculated for 2017.

Global FLNG Capex to Total USD 37.6bln

Global Expenditure on FLNG Facilities by Region, 2012-2023. Graph: Douglas-Westwood

Global Capex on FLNG facilities is set to grow at a 9% CAGR over the 2018-2023 period, with expenditure forecast to total $37.6bn, said Douglas-Westwood report. Given the strong fundamental drivers – increasing gas consumption due to economic growth, fuel switching, and energy security – the outlook for the import vessels will remain strong over the 2018-2023 period. Despite near-term concerns due to challenging market conditions, the incentive to use FLNG units to develop gas reserves in remote places remains compelling.

Sanction Free Iran to Accrue Strong Investment

After 10 years of diplomatic negotiation, the UN P5+1 countries (the U.S., the U.K., France, China, Russia and Germany) reached an agreement to unwind economic sanctions on Iran in return for significant international control and surveillance over its nuclear activities. The deal will revive foreign investment in Iran, as Western IOCs renew pre-sanction projects, notes energy industry market research and consulting company Douglas-Westwood (DW), who adds Brent dropped $1.15 to $56.70/bbl on the back of the announcement, with markets fearing a worsening of the global supply glut. Iran holds the world’s fourth-largest oil reserves and second-largest gas reserves, while being the second largest OPEC producer after Saudi Arabia.

Next Wave of FLNG Projects on the Horizon

There will be significant growth in both investment and activity in the FLNG market over the next seven years, with Douglas-Westwood (DW) forecasting total expenditure of $58.3 billion in its new market report. Sixty-one percent of this spend is attributed to liquefaction infrastructure, with the remainder from import and regasification facilities. Report author, Ben Wilby, commented, “The industry is about to see the installation of the first floating liquefaction projects. The application of LNG technology offshore has been proposed and studied within the industry for more than 30 years so there is intense industry interest in the first applications. The success of these first pioneering projects will no doubt impact future commitments by operators to FLNG developments.

Steady Return to Growth for the Offshore MMO Sector

Photo by Krokstadelva, Norway

Douglas-Westwood has launched its new World Offshore Maintenance Modifications and Operations Market Forecast 2017-2021 which forecasts a steady recovery from the recent oil price downturn with Modifications spend expected to improve significantly between 2017 and 2021. “In 2017, expenditure is forecast to total nearly $81bn for the world’s global offshore platform population of approximately 8700 fixed and floating assets. By service line, Asset Services accounts for over a half of total expenditure, 60%, with Modifications, 21%, Asset Integrity, 14% and Support Services, 6%.

FLNG Birth of a Market

Easy cool Modec’s liquefaction concept is based on efficient “air-conditioning” Courtesy Modec

FLNG deal-making has been sporadic since Woodside Petroleum at the end of 2013 delayed a final investment decision for the giant Browse FLNG project off Northwest Australia. The previous year had seen go-aheads for most of the floating liquefied natural gas projects (FLNG) underway today, including Shell’s Prelude FLNG — Woodside’s choice, it seems, of a liquefaction solution for fields 200 kilometers offshore. Yet Prelude, “the first project out”, might not be first to produce.

Technology Transformation in the Offshore Survey Market

Photo: International Marine Contractors Association

Offshore surveys are a necessary precursor for both Oil & Gas (O&G) and renewable energy installations on the seafloor. Particularly for new projects in remote regions, surveys (oceanographic, geotechnical, geophysical etc.) are critical for successful project design and implementation. However, current market conditions are forcing all parties in the supply chain to rethink their approach. Douglas-Westwood (DW) has engaged with industry experts within the market on future strategy and operator expectations.

LNG Investment Swings to North America

Photo: Chamber of Shipping of British Columbia

The LNG industry is undergoing a dramatic transformation. North American activity (the majority of which is committed spend) is driving a return to growth in global capital expenditure. A wave of new LNG carrier newbuilds will also be required to support a huge increase in traded base-load LNG volumes. Douglas-Westwood’s (DW) new World LNG Market Forecast 2017-2021 indicates global LNG expenditure will total $284 billion (bn) between 2017 and 2021. This represents a 50% growth compared with the preceding five-year period.

North Sea Decommissioning Forecast to Blossom After Yme Removal

Graph Source: Douglas-Westwood’s North Sea Decommissioning Market Forecast 2016-2040

AllSeas recent successful removal of the Yme platform was the first job completed by the Pioneering Spirit – demonstrating that the world’s first single lift vessel (SLV) was back on track after a spate of recent delays. The next decommissioning job for the vessel will be the monumental task of removing the topsides from the Brent platforms, some of which weigh over 20,000 tonnes. Douglas-Westwood estimates that SLVs could potentially lead to almost $12 billion (bn) in savings on decommissioning costs between 2016 and 2040, though this is contingent upon a wide range of factors.

MMO Market Falls 22% in 2015

Graph: Douglas-Westwood

The Offshore Maintenance, Modifications & Operations (MMO) market experienced a substantial fall of 22% in total expenditure between 2014 and 2015, and an additional 5% decline is projected by the end of 2016, says a Douglas-Westwood report. This is a result of the postponement of non-critical work which otherwise would have been sanctioned in a $100 oil period. However, whilst efforts to reduce bottom line figures have paid off and continue to be in play, E&P operators must acknowledge the inevitable threshold levels of MMO that are required in the prevention of lost-time incidents.

Offshore Prospects for 2016: Playing the Waiting Game?

Photo: Douglas-Westwood

This year, the offshore oil and gas industry has had to come to terms with the worst downturn for more than a decade. With commodity prices plummeting to an 11-year low in December, market research and consulting firm Douglas-Westwood (DW) reflects on the year gone by and considers the outlook for the year to come. Offshore rig markets still have a lot to digest before recovery. Rig dayrates have plummeted as a function of significant oversupply. Many of these rigs were ordered in the previous up-cycle, but have only recently entered the fleet at a time when the appetite to drill is poor.

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