reorientation of shipyards: opportunities in offshore energy · 2016-03-29 · offshore constr....

24/11/2014

1

Steve Robertson

24 November 2014

Reorientation of Shipyards:

Opportunities in Offshore Energy

LNG

offshore

onshore

downstream

power

LNG

renewables © Douglas-Westwood Limited 2014

History and Office Locations

• Established 1990

• Aberdeen, Canterbury, London, Houston, New York & Singapore

Activities & Service Lines

• Business strategy & advisory

• Commercial due-diligence

• Market research & analysis

• Published market studies

Large, Diversified Client Base

• >1000 projects, >400 clients, >70 countries

• Leading global corporates

• Energy majors and their suppliers

• Investment banks & PE firms

• Government agencies

Our Business

24/11/2014

2

Relevant Market Coverage Offshore Reports

The World FLNG Market Forecast

The World Offshore Rig Market Forecast

The Offshore Produced Water Gamechanger

Report

The World Subsea Vessels Market Forecast

The World AUV Market Forecast

The World Subsea Hardware Market Forecast

The World Offshore Operations and Maintenance Market Forecast

The World Floating Production Market Forecast

The World ROV Market Forecast

The World Deepwater Market Forecast

Agenda

Macro-Economic Environment

Lifecycle, Definitions & Local Content

Market Outlook

Market Overview

Conclusions

24/11/2014

3

Macro-Economic Energy Demand

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1990 1995 2000 2005 2010 2015 2020 2025 2030

bill

ion

to

nn

es/y

ea

r

Gas

Oil

• Energy demand is the principle indicator of energy-related spend including offshore installations, which in

turn drive demand for offshore vessels.

• Rapid demand growth since 1990 has been a major driver of a higher oil & gas price environment during

this time, which has subsequently led to the viability of complex subsea/deepwater projects.

• The increase in global energy consumption will be led largely by China given the country’s industrial

sector.

Global Primary Energy Demand 1990-2030 Regional Breakdown

North America

19%

Latin America

6%

Europe20%

Middle East7%

Africa4%

Asia Pacific44%

0

5

10

15

20

25

30

35

2000 2004 2008 2012 2016 2020

mill

ion b

arr

els

day

Offshore Deep

Offshore Shallow

0

5

10

15

20

25

30

2000 2004 2008 2012 2016 2020

mill

ion b

arr

els

day

Offshore Deep

Offshore Shallow

Macro-Economic Supply

• The oil industry is mature and generally considered to be struggling to keep up with demand and offset

natural decline

• DW expects shallow water production to continue to account for the majority of oil supply. Deepwater

production is however projected to grow at a higher rate.

• The global gas industry is less mature and as such significant new capacity additions are expected over

the next ten years

0

10

20

30

40

50

60

70

80

90

100

2000 2004 2008 2012 2016 2020

mill

ion b

arr

els

day

Offshore

Onshore

0

10

20

30

40

50

60

70

80

2000 2004 2008 2012 2016 2020

mill

ion b

arr

els

day

Offshore

Onshore

Oil Supply Outlook Gas Supply Outlook

24/11/2014

4

0

20

40

60

80

100

120

140

160

180

200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

$/b

bl

Brent Oil 2014

WTI Oil 2014

Macro-Economic Oil Price

• Weakened demand from Europe and Asia, coupled with significant supply contributions from countries

such as the US and Libya, will likely cause prices to fluctuate between $70 – 80 per barrel in the ST.

• DW expect oil prices to fluctuate between $70 – 80 throughout 2015. Notably, significant production

decline from the US and KSA could place upward pressure on pricing.

• Recovery from Asian and European economies presents some upside potential; however, Japan’s recent

dip into recession suggests this is unlikely in the short-term.

Brent Crude Price Projections Brent and WTI Crude Oil Spot Price (2014)

0

20

40

60

80

100

120

140

160

180

200

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

$/b

bl

High Case

Low Case

Reference Case

$65

$70

$75

$90

$93

$98

$106

$117

$119

$121

$121

$140

0 50 100 150

Qatar

UAE

Kuwait

Libya

Saudi Arabia

Angola

Iraq

Ecuador

Nigeria

Venezuela

Algeria

Iran

Macro-Economic OPEC

• Government budgets vary depending on oil price expectations – most countries rely on oil price being

above $90. However, sovereign wealth funds should serve to offset low oil prices in the short-term.

• KSA will not want to be the swing producer and lose valuable market share. Saudi net exports: $360bn at

$115 oil, $270nb at $85 oil.

• OPEC are unlikely to cut production – supported by recent production agreements between key member

states and Asia (i.e. KSA and Kuwait).

OPEC Fiscal Breakeven Brent and WTI Crude Oil Spot Price (2014)

Saudi Arabia & Kuwait signed new trade agreements with Asia

Saudi Arabia is not likely to step up as the swing producer again

OPEC budgets largely dependent on oil revenues

High oil price was an enabler for unconventionals markets

Sovereign wealth funds will serve to insulate OPEC countries*

*excludes Venezuela – fund no longer available

24/11/2014

5

0

2

4

6

8

10

12

14

16

18

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

$/m

mbtu

Japan LNG

US HH

Europe

Macro-Economic Gas Price

• Gas prices are substantially more regionalised compared to oil and massive recent US shale gas

production has seen major variance with HH trading at a 75% discount compared to Japan-bound LNG.

• Asia’s high price tolerance has been a major enabler for highly Capex-intensive Australian export projects

in recent years, however the potential to ship cheap US gas via LNG could create substantial arbitrage

and threaten higher cost export projects.

Gas Price Projections Range of Gas Prices for Project Sanctioning

$/mmbtu

USA

Global Price Range

Japan

0 5 10 15 20

Arctic

Deepwater

Sour

Coal Bed Methane

Shale

Tight Gas

Conventional

Macro-Economic Capex Compression

• A reduction in E&P spend by oil companies (or Capex compression) is a major threat to projected levels of

offshore vessel demand.

• Since 2000 industry costs have increased dramatically which has impacted project profitability despite an

all time high oil price environment.

• Rising costs have been blamed on supply chain constraints, increased project complexity and a lack of

standardisation.

• Cost escalation has been one of the key reasons for high project deferments by Chevron, Statoil and Shell

in recent years.

Cash Return on Cash Invested for Major Oil versus Real Oil Price Upstream Capital Index

20%

10%

8%

16%

12%

14%

18%

Cash Return on Cash Invested (CROCI)

$20

$40

$60

$80

$100

$120

$/bbl Oil Price

1965

2017e

2000

1990

2010

1980

1970

$100

$80

$60

$40

$20

Oil Price - $/bbl

$120

Cash Return on Cash Invested

18%

16%

14%

12%

2017e

20%

10%

1965

1970

1980

1990

2000

2010

0

50

100

150

200

250

24/11/2014

6

57 MW

49 MW

64 MW

124 MW

145 MW

329 MW

0

5

10

15

20

25

30

35

0 10 20 30 40

Wate

r D

epth

Water Depth

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Annual A

dded C

apacity

(GW

)

Wave & Tidal

Offshore Wind

Macro-Economic Renewables

• Offshore Wind accounts for the largest proportion of offshore renewable energy supply and is driven by

both political and economic factors.

• Political drivers include globally agreed regulations, such as the Kyoto protocol, and various regional and

national measures are being undertaken in order to directly cut or cap greenhouse gas emissions.

• The offshore renewables market is highly reliant on government subsidies due to the high capital cost

involved

Annual Added Capacity Increasing Project Size, Depth and Distance from Shore

2000 Timeline 2020

Agenda



Market Outlook

Market Overview

Conclusions

24/11/2014

7

Oil & Gas Lifecycle

EXPLORATION

& APPRAISAL

DRILLING OFFSHORE

DEVELOPMENT

LIFE OF FIELD DECOMMMISSIONING

5. Decommissioning: The decommissioning stage involves the removal and disposal of an offshore

installation when it’s no longer needed for its intended use.

1. E&A: Exploration & appraisal services are used to determine the existence of oil & gas reserves and the

economic viability of their development.

2. Drilling: Once a development plan has been confirmed, offshore development wells are drilled and

completed using drilling rigs.

3. Offshore Development: The installation stage consists of the use of marine assets to transport, install,

hook-up and commission offshore infrastucture

4. Life of Field: Once production commences all subsequent expenditure is considered operational and

includes the maintenance and operation of offshore infrastructure.

3 5 1 2 4

Vessel Definition

Offshore Support

Vessels (OSV)

Mobile Offshore

Drilling Units (MODU) Construction Vessels WTIV

Floating Production

Units

and Storage Units

AHTS

Crewboats

PSV

Jackup

Semisubmersible

Drillship

Pipe Lay

Reel Lay/ Flex Lay

MSV/DSV/MPSV

Offshore

Construction

WTIV

Accommodation

Barges

FPSO

FPSS

TLP

SPAR

FSO

1. Offshore Support Vessels – OSVs are used in a variety of roles throughout the lifecycle of an offshore

development and can be further divided into three main vessel types.

2. MODU – MODUs are used for both exploration, developmental drilling and in some instances, well

intervention work. These offshore drilling rigs are either anchored to the seabed or dynamically positioned

3. Construction Vessels – These vessels are used extensively during the field development stage and can

be further divided into SURF & Pipelays, Subsea and Conventional Construction Vessels

4. Floating production units - This refers to offshore units that are involved in the production and storage

of oil & gas

5. WTIV - Wind construction vessels are mainly exposed to the renewables market and have a different set

of market drivers as compared to other vessel types

3 5 1 2 4

24/11/2014

8

Local Content

1. North Sea – not governed by a set of local

content requirements, although there has been

an added emphasis on environmental and

safety issues.

2. North America – No explicit local content

requirements for offshore vessel construction,

however, a variety of regulations govern

offshore vessels that can be operated within the

US:

a. US Coast Guard (USCG)

b. Mineral Management Service (MMS)

c. Jones Act

3. Africa - The shipbuilding industry in Africa is currently going through major changes as the region

struggles to meet local demand (mainly in the oil & gas industry)

South Africa - Revised Preferential Procurement Policy Framework Act (PPPFA) regulations

for Shipbuilding

Current local content have a focus on Production Units

Local Content Cont.

1. Latin America – Brazil has introduced several local

content requirements in an attempt to strengthen

the local industry

While local content policies are in place, the

local industry struggles to meet Petrobras’

ambitious E&P plans

2. Middle East – No explicit regulations regarding the

construction of offshore vessels.

Historically, contractors in the region have

acquired vessels from both Western and

Asian yards.

3. Asia - There are no explicit construction local content requirements governing Asian countries,

however, local content policies on vessel contracting exists.

Indonesia – Requires all drilling vessels to be Indonesian-flagged

Malaysia – Petroleum Development Act and Petroleum regulations require supplies and

service providers to have a valid license produced by Petronas (NOC of Malaysia)

24/11/2014

9

Agenda



Market Outlook

Market Overview

Conclusions

Vessel Newbuild Requirements

7500

8000

8500

9000

9500

10000

HIGH

Required

Fleet with

Retirement

OSV

LOW

Required

Fleet with

Life Extension

MODU

Subsea

Constr.

Offshore

Constr.

Wind

Constr.

Current

Fleet

OSV

MODU

Subsea

Constr.

Offshore

Constr.

Wind

Constr.

FPU

Range of vessel requirements

Vessels required over 2014-2025 with

life extension of old assets (no

retirement)

Additional vessels required over

2014-2025 due to retirement/ fleet

replacement

Vessels

• Total vessels required over the 2014-2025 period

ranges from 1229 units to 1964 units.

24/11/2014

10

61%60% 60% 59% 64%

70%80% 80%

93% 88% 89%82%

70%57%

59%

0%

50%

100%

150%

200%

250%

0

10

20

30

40

50

60

70

2000 2002 2004 2006 2008 2010 2012 2014

CG

T (

mn)

Shipyard Capacity - Global

Shipyard Capacity - OECD

Vessels - Global

Vessels - OECD

Historical Orders and Shipyard Capacity

Historical Shipbuilding Activities

• Historically, OECD shipyards have averaged 71% utilisation over the 2000-2014 period with a peak in

2006-2010 where utilisation reached 93%.

• Offshore vessels saw an accounted for 11.3% of total CGT, an increase from 6% due to an increasing

offshore market coupled with a slowing marine shipbuilding market

• OECD yards have been losing market share to non-OECD yards mainly due to lower cost of construction

and favourable financing terms

NOTE: CGT of offshore vessels is sourced from

Clarkson’s Research

OECD Yard Capabilities

OECD Yard Capabilities (CGT) vs Offshore Vessel Requirements (CGT)

• Based on maximum CGT of each yard, 34% of OECD offshore yards are able to construct production

units such as FPSOs and 48% have sufficient yard capacity to produce drillships

• The vast majority of yards (96%) are able to produce smaller, less complicated vessels such as OSVs.

• It may be important to note that this matrix does not take into account other key factors such as

engineering capabilities, EPC capabilities and other commercial factors.

% of Offshore Yards

with Capability

% of Yards with

Capability

0

10,000

20,000

30,000

40,000

50,000

60,000

OtherOffshore

OSV OffshoreConstr.

SubseaConstr.

MODU(Drillships)

ProductionUnits

34%

96%

48%

73%

90%

46%

90%

55%

69%

82%

61%60% 60% 59% 64%

70%80% 80%

93% 88% 89%82%

70%57%

59%

0%

50%

100%

150%

200%

250%

0

10

20

30

40

50

60

70

2000 2002 2004 2006 2008 2010 2012 2014

CG

T (

mn)

Shipyard Capacity - Global

Shipyard Capacity - OECD

Vessels - Global

Vessels - OECD

24/11/2014

11

0

500

1000

1500

2000

2500

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

Vessel D

ays

'000

Crewboats/ ERRVPSVAHTS

OSV Demand

• The AHTS market is driven by a combination of large assets supporting deepwater drilling and smaller

multi-purpose service vessels.

• The PSV market is expected to see the strongest growth out of all OSV types as a result of increased

demand for floating production systems and drillships.

• Typically, the crewboat /ERRV market is less subjected to industry cyclicality given the greater exposure

to longer term life of field contracts and a relatively consolidated supply chain. With the exception of the

largest vessels, the majority of construction activity is highly localised.

OSV Day Demand ‘000 Key Points

Demand for AHTS globally is expected to show

an increase of 45% - 973,000 days by 2025

Demand for PSVs globally is expected to show

an increase of 50% - 481,000 days by 2025

Demand for crewboats globally is expected to

increase by 23% - 614,000 days by 2025

MODU Demand

0

200

400

600

800

1000

1200

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

Unit D

em

and

DrillshipSemisubJackup

• Significant growth is expected in the shallow water jackup drilling market before a plateau between 2020-

2025. The market is also trending towards larger 400ft and above rated units.

• The semisub market is driven by deepwater demand in harsh operating environments such as the North

Sea, Latin America and Australasia.

• Demand for drillships is expected to see robust growth, driven by the deepwater triangle – West Africa,

Latin America and North America.

MODU Unit Demand Key Points

Demand for jackups globally is expected to

increase by 45% - 586 units by 2025

Demand for semisubs globally is expected to


Demand for drillships globally is expected to


24/11/2014

12

FPU Demand

0

50

100

150

200

250

300

350

400

450

500

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

Unit D

em

and

FSOTLPSparFPSSFPSO

Demand for FPSOs globally is expected to


Demand for FPSS globally is expected to


Global demand for SPARs is expected to


• The FPSO market is predominantly project-driven with an additional 129 units expected over the 2014-

2025 period. An additional 12 FPSS may be required over the forecast period.

• SPAR additions will mainly be deployed in the North American market. A US-centric market will continue

to see regional yards supplying topsides with European yards taking up hull contracts.

• Due to the project-driven nature of these production units, DW does not expect any clear trends in terms

of specifications on TLPs.

• Asian yards are expected to continue supplying FSOs due to relatively lower engineering requirements.

FPU Unit Demand Key Points

Demand for TLP globally is expected to


Global demand for FSOs is expected to

increase by 10% – 90 units by 2025

Construction Vessel Demand

0

50

100

150

200

250

300

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

Vessel D

ays

'000

Wind ConstructionBargesOffshore ConstructionSURF & Pipelay

Subsea Construction

• Driven by an increasing volume of subsea installations coupled with a high volume of IRM activities, DW

expect demand for subsea vessels to see robust growth particularly from Latin America and Africa.

• SURF vessels are expected to enjoy higher growth due to an increasing volume of subsea installations

particularly in Africa and Latin America. Convention pipelay demand from the Middle East and Asia.

• Key offshore construction specifications include larger crane capacity due to larger offshore platforms.

• Asia is expected to dominate accommodation barge supply over the forecast.

• Increasing water depth and size of wind turbines is expected to drive higher requirements for larger

cranes and deeper operational capabilities.

Construction Vessel Day Demand ‘000 Key Points

The subsea vessels market is expected to

grow by 176% - 54,000 days in 2025

The SURF & Pipelay vessels market is

expected to grow by 62% - 40,000 days in 2025

Demand for construction vessels is expected to

decrease by 14% - 11,000 days in 2025

Demand for barges globally is expected to

increase 35% - 39,000 days in 2025

Demand for wind construction vessels is

expected to double – 55,000 days in 2025

24/11/2014

13

Agenda



Market Outlook

Market Overview

Conclusions

OSV79.4% MODU

8.5%

Subsea Constr.6.0%

Offshore Constr.1.0%Wind Constr.

0.6%FPU4.7%

0

20

40

60

80

100

120

0

100

200

300

400

500

600

700

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Total Vessel Deliveries

Average Oil Price

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

Units Construction Vessels

FPU

MODU

OSV

Market Summary

• Over the 2014-2025 forecast period, demand for all vessel types is expected to increase by 3.7% CAGR

• Historical supply and building activities have experienced two distinct build cycles. The first cycle marked

the advancement of the global offshore oil & gas industry, which led to a spike in offshore construction

• The last decade has seen higher building activity, driven by both a high oil price environment and a need

for fleet replacement.

Market Demand Outlook 2008-2025 Historical Newbuilds

2006-2014

24/11/2014

14

>30 Years - Retired

• Track record and lead time critical

• Favourable financing terms & lower

costs have enabled Chinese yards to

secure market share

• Drillships are the most challenging build

• Drillship market is dominated by 3

Korean yards – Singaporean yards

easing into this market (i.e. Keppel)

• Singaporean yards dominate

• Technical capabilities and track record

critical – cost pressures mitigate this

• Larger PSVs require high level of

technical capability

• <2,000 HP very price competitive

• Larger AHTS require high level of

technical capability

• <8,000 HP very price competitive

• Less technically complex

• Proximity of yards is a key criteria

80

140

350

670

350

Summary & Conclusions

Semi-Submersible

Jackup

Drillship

Current Fleet

Size

2014 – 2025

CAGR

97 4.5%

221 5.1%

508 3.4%

Vessels

Required

AHTS

Crewboats/ERRV

PSV 1,819 3.7%

2,779 3.4%

1,159 1.9%

50

40

170

465

160

Upside Potential – High Case Barriers To Entry

• Not high tech vessels

• Emerging market – significant Chinese

presence (55% of newbuilds)

• Significant range in vessel quality

• Barges are very price competitive

• Top tier yards secure high specification

vessel contracts

• Significant range in vessel quality

• Barges are very price competitive

• Top tier yards secure heavy-lift contracts

• Contractors have established

relationships with design houses & yards

• Some shift towards Asian yards evident

• Western contractors tend to favour

western yards – Asian and Middle East

contractors are more cost conscious

• Lack of IP regulations

42

24

26

36

42

Upside Potential – High Case Barriers To Entry

Summary & Conclusions

• Yard EPC capabilities critical

• Turnkey projects awarded to yards

• Top tier yards - engineering capability

~185

Current Fleet

Size

2014 – 2025

CAGR

Vessels

Required

WTIV

Accommodation

Barges

33 15.8%

98 3.2%

40

19

SURF Vessels

Subsea Vessels

Offshore

Construction 110 -1.5%

148 10.0%

380 7.7%

15

30

36

FPUs 328 3.3% ~185

>30 Years - Retired

24/11/2014

15

Conclusions

• Underlying macro fundamentals are supportive of continued growth in demand

for oil & gas.

• Positive macro outlook gives a favourable indication towards the requirement for

additional offshore infrastructure.

• Robust growth forecast for both the OSV and MODU market is expected over

the next decade, supported by increasing offshore drilling activities.

• An increase of 3.3% CAGR for OSVs and 4.8% CAGR for MODUs are expected

till 2025. This growth is largely attributed to the increase in activity in Latin

America, Africa and Asia.

• DW expects growth in the FPU market given the increase in offshore production

activity.

• Besides subsea and SURF vessels, the requirement for construction vessels

will be driven by the replacement market.

• Wind construction vessels is expected to grow rapidly with continued

government subsidies. However, strong Chinese presence.

Any Questions?

reorientation of shipyards: opportunities in offshore energy · 2016-03-29 · offshore constr....

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