IHS Markit: Middle East OSV market shows ‘modest growth’

The Middle East is the only region to buck the downward trend in offshore supply vessels (OSVs) over the last two years, according to new analysis released on Wednesday by IHS Markit, an information and analytics group. 

Demand in the region has remained steadfast since the decline in the price of oil in 2014 and outpaced South East Asia, the Gulf of Mexico and the North Sea, IHS Markit said.

Namely, demand for OSV in the Middle East was 2.6 percent higher in December 2016 than in January of 2016, according to Petrodata, part of IHS Markit. That is an increase from an average of 270 vessels secured on term charters at the start of the year to almost 278 during the final month. Petrodata tracks offshore drilling rigs and various types of vessels working in the offshore oil and gas industry, including construction, support and seismic vessels.

“The increase may appear modest at first, but all other regions reported significant drops in activity across 2016,” said David Hunter, senior marine analyst at IHS Markit. West Africa saw a 30 percent reduction, the US side of the Gulf declined 31 percent decline and Mexico lost 53 percent of term work during last year, according to Petrodata.

IHS Markit said that new short to medium term opportunities are expected to open in the Middle East offshore oil and gas market in the next 24 months. According to the Global Offshore Supply Vessel Forecast issued by Petrodata, OSV demand in the region will remain firm and stable given the pipeline of drilling and field development projects, with an anticipated growth for OSV term demand from 118 vessels in the first quarter of 2016 to 145 vessels in the fourth quarter of 2018.

“The Middle East offered some of the only bright spots and growth opportunities in the OSV market in 2016,” said David Manuel, senior marine specialist from IHS Markit. “Spending levels in the Middle East have been the least affected by the oil price slump because of relatively low break-even prices, many large ongoing projects, and the dominance of national oil companies, which have the long-standing pledge to keep production capacity in line with their market share.”

The region remains to have the highest jack-up rig utilization levels compared to other regions and still the biggest jack-up market in the world – a key indicator of OSV demand, Petrodata analysis said.


Increased competition driving down prices


According to the group, the opportunities for OSV in the Middle East have attracted idle tonnage from other markets affected by reduced Exploration and Production (E&P) spending. The influx of vessels from other regions has resulted in a 14 percent increase in the number of OSV in the Middle East last year and brought utilization rates down to just 45 percent, Petrodata said.

“OSV supply has risen considerably during the year from 553 vessels in January 2016 to a record-high of 625 vessels at present. This burgeoning supply is driving intense competition between local OSV providers and international players,” Manuel said.

The Middle East is now the second biggest global OSV market with 17 percent of the global fleet, behind Asia-Pacific. The shallow-water territory of the Middle East has overtaken OSV tonnage in the mature, deepwater markets of Gulf of Mexico, Northwest Europe, Latin America and West Africa.

“The compounding glut will continue to be exacerbated by a wave of new build deliveries in the coming months almost entirely from Chinese yards,” Manuel said. “This new-build backlog was either ordered by Middle Eastern owners or built on speculation by shipyards before the downturn. Moreover, a series of speculative mobilizations, mainly from Singapore, is also expected to further contribute to the oversupply in the next 12 months.”

“The excessive regional tonnage has resulted to plummeting daily charter rates over the last three years, with several operators reporting a drop between 30 and 50 percent from its highs seen before the downturn.”

Earned day rates in the Middle East are reported to have bottomed out to almost breakeven levels last year, with AHTS vessels with DP2 capabilities and 5,150 bhp getting around $7,500 per day. According to Petrodata, a record of 80 vessels has been laid-up in the region since 2014. This includes not only the older tonnage but also the competitive vessels.

“Interestingly, some vessels unable to pick up work have secured temporary charters outside the offshore oil and gas market. These vessels are temporarily serving in the civil engineering sector or providing logistical support to humanitarian and relief operations,” Manuel said.