Scorpio Bulkers: Renewables highly compelling market for our future

Scorpio Bulker’s decision to invest in a wind turbine installation vessel, announced earlier this week, came as a major surprise for the market, with many questioning the motives behind the dry bulk operator’s bold move into a brand new sector.

Image credit Scorpio Bulkers

The company signed a Letter of Intent with South Korean shipbuilder Daewoo Shipbuilding and Marine Engineering Inc (DSME) to construct a wind turbine installation vessel, costing approximately $265-$290 million. 

The vessel is scheduled for delivery in 2023.

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The idea of venturing into the renewables started being explored two years ago, Emanuele A. Lauro, the company’s co-founder, Chairman, and Chief Executive Officer said during a conference call held on Tuesday.

“We believe that the strategic rationale, the financials, and the long-term outlook in this area of renewables is highly compelling for the future of our company,” he pointed out.

“We, as a team, are very excited about the potential this investment creates for our company.”

The move into the renewables has been described as a natural progression for the company as many of Scorpio’s clients transition from fossil fuels to low carbon technologies and less-polluting energy sources.

Scorpio decided to invest in the offshore wind after discussions with numerous stakeholders, renewable energy specialists, potential customers, and designers as it realized the sector had an enormous growth opportunity, offering very attractive returns.

The growth rate in the market is believed to be far more predictable than in dry bulk which was rather cyclical.

Based on the current data daily rates for an offshore wind installation vessel stand at around $220K, which is likely to go up in a couple of years once the company’s vessel is delivered, paving way for strong returns to the company’s shareholders.

Having investigated the market outlook, from a customer-centric perspective, the company found that as turbines more than doubled in size and the growth in output quadrupled, a material shortage (up to 10 ships) of high-spec wind turbine installation vessels was expected from 2024.

The vessel

The company believes the vessel will be the most advanced, dedicated, turbine installation vessel in the world.

Cameron Mackey, Chief Operating Officer, said four key elements characterize the vessel: precision, stability, capacity, and robustness.

Market trends and needs have basically shaped the future design of the vessel, with a major focus on deck space and turnaround times, as well as depth, as wind parks are being built further from shore.

Hence, the NG-16000X design GustoMSC vessel will be able to accommodate around 130 people, and be fitted with a 1500 Leg Encircling Crane (LEC) from Huisman Equipment B.V

The hull length of the vessel will be 148 meters, its width being 56 meters while its depth will span 12 meters.

The ship’s water depth survival in jacked-up mode will range between 65 and 70 meters.

It will be powered by a hybrid battery and is fuel-cell ready.

Business organization

Commenting on the business organization and playing the market, Mackey said that specialist competencies involved during the construction of the ship and post-delivery are yet to be built up.

“These will probably involve jacking engineers, project engineers, heavy-lift specialists, etc. But beneath that, there is a very clear endorsement from the customers that we have the health, safety, environmental, and quality (HSFQ) DNA required to credibly compete here and deliver the service,” Mackey added.

“While we know that we have a fair bit of work to do in building out the organization, we enter the market with confidence that we have the credentials to be on the same stage as very credible, long-term incumbents.

“When it comes to contracting we start today with the pre-qualification discussions with those customers in order to be in a position to tender for contracts within the next 12 months or so. And then it will be a commercial decision on what our risk tolerance will be and when exactly we want to contract the vessel.”

Scorpio disclosed that it was in a really strong liquidity position to fund the vessel, having secured approximately $161 million of liquidity over the recent period.

Furthermore, the company is confident that it would secure bank financing for the vessel as well, keeping the debt to equity ratio at 60-40 percent.

The debt portion of the equation is likely to come from export credit agencies in Korea.

The ship is expected to be deployed globally, however, there is reach demand slated in Asia, Europe ad North America.

The final construction contract is expected to be signed in early Q4 2020, once the final design details are agreed upon, and will include options to construct up to an additional three units having similar specifications.

The estimated life of the vessel is 25 years.