DW: $77 Bln to Be Spent on Subsea Vessel Ops by 2017

Douglas-Westwood forecast that approximately $77bn will be spent on subsea vessel operations in field development, inspection, repair & maintenance (IRM) and subsea well intervention between 2012 and 2016. This is an increase of 63% over the preceding five-year period.

Global vessel demand for these markets is expected to increase 33% on the previous five-years. Global vessel expenditure grew from $8.7bn in 2007 to over $10bn in 2009 before dipping in 2010. During this period vessel contractors were largely protected from the financial crisis which strongly impacted some other sectors and were able to work off their backlog.

Subsea Vessel Operations

The latest edition of Douglas-Westwood’s World Subsea Vessel Operations Market Forecast considers three main areas of activity: Field Development, IRM and Subsea Well Intervention. Field Development: Tasks carried out by vessels which can lift and install offshore and subsea infrastructure for new developments or connect additional subsea equipment to an existing production facility. The field development market is expected to see strong growth from 2012 onwards with vessel day demand totalling an estimated nearly 150,000 days with $4.2bn of expenditure over the forecast period.

The sector suffered a slight decrease in activity between 2008 and 2010, as operators stalled projects due to the economic crisis. 2012 will mark the first year of growth after this period as confidence returns to the market and operators drive delayed projects into the installation phase. Future demand will be driven by developments in deeper waters. Oil majors have an urgent requirement to renew reserves to keep up with growing global demand for oil and gas and the largest prospects lie in deep water.

IRM: Tasks carried out on offshore infrastructure below the water line in order to maintain production and ensure suitable HSE standards are met. Total demand for IRM vessel activity grew by 19% between 2007 and 2011 and expenditure reached $4.5bn in 2011 which represents nearly 28,000 vessel days. This continuing upward trend is being driven by the growing installed infrastructure base and is forecast to be worth $7.5bn by 2016.

Subsea well intervention: is an umbrella term for a number of distinct tasks which are designed to maintain structural integrity of wells or increase production. The use of intervention vessels will grow due to substantial cost savings over  using rigs. From 2012 onwards the demand for riserless and rigless intervention vessels will increase dramatically.  The vessel demand forecast over the period 2012-2016 is expected to total an estimated 23,000 days; an increase of over 130% compared to the previous five year period. This demand growth is driven by the realisation of large cost savings possible through the use of intervention vessels and the subsequent increased adoption of the technology.

 Vessel Contractor Competition
The market for vessel contractors is highly fragmented. DW has identified nearly 450 vessels from over 80 different contractors. Whilst there has been some consolidation in the industry with the Subsea7/Acergy merger, the vessel market is comprised of a significant number of international vessel contractors and smaller regional players.
The industry possesses high barriers to entry. New competitors face the challenges of the complex nature of project execution involved in offshore developments, the requirement for highly skilled employees and limited access to cheap  newbuild financing options.

Market Forecast

DW forecast strong growth over the next five years with annual subsea vessel operations expenditure set to rise from $11.3bn in 2012 to $20.3bn by 2016. This growth is a result of confidence returning to the subsea industry, a move towards deep water in underdeveloped regions and ultra deep in some already developed, and the subsequent increased demand for higher specification vessels over increased operational timescales.

Conclusions
The nature of the offshore industry has evolved dramatically over the past ten years with deepwater accounting for 24% of activity in 2011 compared to 6% in 2000. This trend has driven an evolution in the types of vessels required by the industry to support offshore field developments with cranes, deck spaces & dynamic positioning systems increasing in size, complexity and efficiency.
The general outlook for the subsea vessels market shows long term growth potential and a very sizable business opportunity. Despite this, the market will retain its long-term cyclicality as vessel owners over-react to the upcycles. The best vessels will, however, always find a market and niche-players will continue to thrive in any downturn.

[mappress]
November 19, 2012