Transition to a new reality
The market is beginning to show signs of recovery. DNV GL’s Arnstein Eknes gives his assessment of the risks and opportunities, advising the offshore industry to embrace new ways of operating.
Despite recent signs of recovery, there is continued overcapacity in offshore shipping in the wake of the 2014 oil price crash. Low market demand together with a high number of ships in lay-up means low rates, making it difficult for offshore shipowners to service their still formidable debt loads and effectively keeping a lid on new investments.
On the other hand, with oil prices returning to levels above 70 US dollars (USD) per barrel, oil companies are making money again. More field investment decisions are being made, indicating a return of optimism, but this has yet to trickle down to the shipowners since oil companies are busy paying back their own debt.
Improving fleet utilization
As we transition out of one of the most difficult periods in the history of the offshore industry, we believe operators should review their approach to risk and reward since offshore service vessel owners continue to operate with very tight cash flows. Creating an incentive for improvement while allowing shipowners to regain financial stability will be essential in the foreseeable future.
With more investment decisions being made, we expect fleet utilization to increase. While some local markets may rebound faster than others, analysts predict global utilization to remain below 60 per cent for the coming three years. Provided that the pace of recycling picks up, that rate might increase somewhat. But competition to offshore investments is heating up as energy companies change their investment patterns, with renewables, gas and landbased projects getting a larger share than just a few years ago. We believe the subsea market will continue to grow as operators seek ways to lower operational expenditure (OPEX).
Driving smart standardization
These and other changes in the market suggest that it may be time to challenge “old habits” and ways of working. We think that collaboration and new solutions for smart standardization are essential initiatives to contemplate, along with ways to utilize new technology as it evolves. That being said, the offshore industry will need to keep a level head, maintaining its safety record and striving to find the optimal balance between streamlining current operation and investing in transformational opportunities. I recall a prediction by a colleague years ago that the decade from 2010 to 2020 would be one of major transition for all industries. This has proven to be true in more ways than we could have imagined. Geopolitical, economic, technological and regulatory forces have converged to create a new business climate, not always hospitable, but certainly harbouring plenty of opportunity.
Time for renewed impetus
Scientists tell us that stress reduces our ability for cognitive thinking. Does this mean that the current market situation is limiting our capability to find creative solutions or alternative ways of engaging offshore vessels?
Evidence speaks to the contrary: We see clear indications that the downturn has triggered a new type of creativity in this industry. The growth in offshore wind activity represents a fresh and alternative business opportunity for offshore vessels. What is more, the growing offshore aquaculture industry has opened up an additional area of activity. Transferring people using vessels instead of helicopters is yet another, with walk-to-work technology now coming back to the oil and gas industry as a cost-reducing measure. Utilizing the offshore fleet as part of national or regional emergency preparedness in collaboration with coast guards and navies also represents new thinking.
So as the market begins to show signs of recovery, we believe the offshore industry should be ready to embrace new technologies and ways of operating and tackle the challenges that lie ahead with fresh energy.