After the dramatic disruption of 2020, offshore oil and gas markets are seeing slightly improved activity, utilisation and sentiment edge into the market. Extracted from our upcoming Offshore Review & Outlook, this week’s Analysis profiles these trends alongside continued challenges. And as the focus on energy transition and de-carbonisation intensifies, offshore wind continues its exciting growth phase.
After the dramatic disruption of 2020, offshore oil and gas markets are seeing slightly improved activity, utilisation and sentiment edge into the market. Our cross-segment day rate index is now up 15% during 2021, albeit only returning to the modest market improvement levels seen pre-Covid. The contrasts for offshore energy continue, with positive momentum for offshore wind.
Global energy markets have continued to re-balance, with returning economic growth and easing of restrictions boosting demand (estimated at 96.8m bpd by June) combining with the OPEC cut discipline of the past year. The reversal of the previous heavy oversupply of mid-2020 (albeit demand is still 4% below 2019) has helped oil prices improve before fluctuating around $70-75/bbl since early June. Higher prices have prompted OPEC+ agreement to begin a gradual easing of supply curbs.
Offshore oil and gas remains 17% of global energy supply (offshore wind is 0.2%). After a small decline, offshore oil output is expected to grow in 2021 by 1.1% to 24.86m bpd (28% of global oil output). Offshore gas is projected to grow by 6.2% in 2021, reaching 127bn cfd (32% of global gas production). Total capital commitments for new offshore oil and gas projects reached $59bn in Jan-Aug 2021, already exceeding $41bn recorded in full year 2020. Our full year projection for 2021 is $81bn, though upside potential exists if oil prices remain firm. Global E&P spending is expected to see a moderate increase of c.5% y-o-y, despite a further decline in onshore shale spending. Meanwhile, offshore wind capex is projected to reach $46bn in 2021 (although just $12.9bn has been committed in Jan-Aug 2021, multiple large windfarm FIDs are projected during 2H 2021).
Gradual Pick Up…
The drilling rig market has seen some pick up, with utilisation of floaters up 8 points since start year (to 73%), and jack-up utilisation also up but by a more disappointing 1 point (to 76%). Whilst demand has improved marginally, it is still down on pre-Covid levels (464 rigs, were active at start-September versus 524 at start-March 2020), and utilisation has been helped by an increase in removals (2021 ytd: 29), some of which have been finalised during Chapter 11 restructuring. There have been “pockets” of improved rate levels in markets such as the US Gulf. Our forecasts suggest further consolidation and gradual utilisation improvements (to 85% and 83% for floaters and jack-ups by end 2022).
While remaining challenging, OSV markets have also improved, with demand up 12% on start-year. By start September, OSV utilisation had risen 7 points to 65%, helped by an annualised 50% increase in removals. After a 15% drop across 2020, our overall OSV rate index gained 17% to 96.5 by end-August, with encouraging improvements for large PSVs but more sluggish developments for AHTS. Again our projections suggest improved utilisation: rates will hopefully follow. Emissions reduction is increasingly becoming a focus for charterers, with solutions in the near term involving batteries, but newbuildings are still a little way off.
Subsea contractors have begun to improve their backlogs and there is cautious optimism around next year’s tendering levels. Supported by wind demand, MSV utilisation has improved from seasonal lows of 57% in February to 76% at end-August: North Sea rates are up to their best levels since 2015. MOPU sanctioning has seen a pick-up (6 FPSOs, 7 other MOPUs awarded) with Petrobras accelerating project timelines and other projects such as Limbayong (Malaysia) and Jansz/Io (Australia) making progress. Cost escalation and financing are challenges.
Winds Of Change…
After record investment ($56bn) and start-ups (6.7GW) for offshore wind in 2020, activity was slower in 1H 2021, but underlying trends of geographic diversification, larger turbines (avg. height installed in 2021: 126m), floating farms and being “green through the supply chain” are expected to continue. We are still projecting record start ups this year (12.6 GW). There has been ordering of WTIVs (11 confirmed in 2021) and SOVs (11), as the development of the specialist “wind” fleet continues. As post-Covid planning and political focus on energy transition intensifies, (see our Energy Transition Model), debate around long term offshore oil and gas production is impacting access to finance and long term spending commitments.
After a challenging 2020, offshore oil and gas markets have picked up in 2021 and there is some cautious optimism slowly returning. Offshore wind, meanwhile, continues its exciting investment and development phase.
The author of this feature article is Stephen Gordon. Any views or opinions presented are solely those of the author and do not necessarily represent those of the Clarksons group.