At the end of August, more than 70,000 people will descend on Stavanger for Offshore Northern Seas (ONS). After the 2020 event fell victim to the Covid pandemic, this marks the first time the conference has been held since 2018. As markets across offshore and renewables improve in 2022, it’s a good time to take stock, and look at how the offshore energy markets have changed since 2018.
2018: Down In The Doldrums
At the last ONS, the offshore oil and gas markets were in their fifth year of a prolonged recession that had its roots in the demand collapse of 2014 and huge oversupply from a record newbuild programme. The Clarksons Offshore Index (our dayrate index covering rigs, OSVs and subsea) was stumbling along at just 47.7, only marginally above its ten year low (2017: 44 points). Optimists were taking solace at an improving oil price ($70/bbl) and some modest recovery in utilisation. The North Sea harsh “floater” market was one of the few highlights, significantly outperforming the global market (this is now one of the few data points slightly lower today, though improvement is expected if Norwegian drilling requirements pick up).
2020: Covid Impact
As we covered in our Covid-19 Impact Assessment series (see Offshore Intelligence Network), any embryonic market recovery was sent reeling by the pandemic’s dramatic impact on energy markets. In the drilling market, over 100 contracts were cancelled or re-negotiated as global utilisation fell to 73% by Jan 2021. In OSVs, global utilisation fell to 57% and North Sea PSVs hit 66% utilisation and rates of £6,500/day. But this downturn was a “shorter, sharper shock” by comparison, with a subsequent strong oil price recovery, enhanced vessel removals, consolidation and a build-up of “pent-up” demand.
2022: Recovery Gets Going
As participants gather in Stavanger again, the Clarksons Offshore Index has reached a seven-year high of 80 (68% higher than 2018), supported by increasing offshore activity and the multi-year impacts on fleet supply of consolidation, restructuring, limited newbuilding and ongoing removals. In the North Sea, term rates for large PSVs are 78% higher (£14,500/day at start-August) versus 2018. Large AHTS spot dayrates have hit records, averaging £105,000/day in July 2022 for 20,000 bhp+ units (five times 2018 levels). Though partly down to the small size of this market (<20 vessels seeking spot work), it is indicative of a real improvement in demand.
Energy Transition & Security
The upturn of 2022 already feels more entrenched and broader-based than the aborted gains of 2018/19 (see table). Despite recent oil price softening on fears of inflation-induced recession (the gas price is up 346% on 2018), our projections suggest utilisation will improve further. Energy security is sharply up the agenda following the Ukraine conflict and offshore oil & gas investment may benefit (North Sea oil & gas production are down 3% and 8% respectively on 2018). Expect plenty of energy transition discussion at ONS too: offshore wind (53.7 GW active globally) has increased to 0.3% of global energy supply. For oil service companies, pressure to “go green” is becoming more urgent (we track alternative fuels and battery packs). Efforts are also being redoubled on carbon capture, and to reduce platform emissions. Enjoy ONS!