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Oil price tumble puts further squeeze on German shipyards

Oil price tumble puts further squeeze on German shipyards
Ever since the relocation of large-scale commercial shipbuilding to Asian yards, German shipbuilders and repair yards have had to play to their strengths, undertaking more expensive, highly-specialised work.

German shipyards now find their niche in the bespoke, technically sophisticated jobs for which Chinese and Korean yards have not been as well equipped. “We have such specialism that we tell the owners, we tell class, how to do it,” Jan Kees Pillar, md of Blohm+Voss Repair, explained to Seatrade Global. “We had a Chinese ship here, with a damaged rudder, the sealing gear had popped open, and they didn’t know what to about it. We can say that this is our area of expertise.”
In the last few years off oil and gas exploration boom, this specialisation has meant offshore vessels, where extremely high operational requirements necessitate many unique components requiring a high degree of technical expertise. Unfortunately, with many oil and gas projects now put on hold thanks to the slump in oil prices, the good times may now be coming to an end.
“Oil and Gas is dead,” Pillar proclaimed, at his office in amongst the floating drydocks of the historic Blohm+Voss shipyard. With deepsea commercial shipping repairs not a major revenue stream for his company, a drop in oil and gas offshore work leaves behind a big hole.  “Cruise and yachts do not really make up the shortfall. So what we are trying to do is find other markets, because we have to fill this gap. One of them is navy work, and we are looking now at wind energy. We have to adapt, immediately.”
Pillar does not believe that the oil price is going to stay low for very long, predicting an increase by “the end of this year” to $75, and $100 a barrel within two years. Unfortunately, many speculators disagree. A recent Bloomberg article highlighted a “growing consensus” from BP, the International Energy Agency, “and even the Saudis” that oil would stay in $50-60 “for at least the next few years.”
Lloyd Werft shipyard’s Rudiger Pallentin is not as optimistic as his Hamburg rival, and does not expect the oil price to increase for another three to five years. “We have had so much work for the last two years… by December we were having problems because we could not get free capacity. Last year we finished two conversions for Schlumberger, where we converted OSVs into well-stimulation vessels.
“But since January it’s a bit quieter. We have work, and we have a lot of ships here, but there is no big work at the moment. I will not say ‘put on hold’ but you feel that the low oil price means these companies are not so hungry anymore, to get new units in. Since the oil price is lower, there’s no incentive.”
The yard prides itself on the Ceona Amazon, a highly complex pipelaying vessel which has been delivered to its owner for the final fitting of pipe handling equipment before entering service in April this year – a narrow escape, it appears. Pallentin says the vessel is “lucky” to have won a charter for the second half of 2015. “This is a good sign. It’s a good showpiece for us.”
Unfortunately, other areas are now struggling too, one of them being retrofit of scrubbers, which was expected to swell the German yards’ orderbooks for months to come, but now has failed to materialise. “We did some scrubber work in the last half a year – six vessels - but it’s not such a big run as was expected. Not all these projects became reality.
“I have some sympathy – for a normal cargo ship, supply and installation of a scrubber, you are looking at $3m. I personally like it that we take care of the environment, but on the other side I can see the economic situation. It makes no sense to force shipowners to invest.”
Equipment supplier Becker Marine Systems’ portfolio almost entirely consists of fuel-saving technologies, but the company hasn’t seen any lapse in orders. “We’ve just had talks with our banks today and we met five banks who are very heavily involved in shipping. They said the period of low oil prices will carry on for a while. An analyst from Deutschebank said at least the next four to five years.”
Despite the gloomy prediction, md Dirk Lehmann has a counter-intuitive theory that depressed fuel costs may actually boost his balance sheet. “Low fuel prices will lead to certain overcapacity in ships because it attracts liner operators to run individual ships faster again, saving ships-per-line. The cargo volume is the same, and you have the choice to transfer that volume with a lot of ships, slow-steaming, or you decide let’s do it with fewer ships, and save OPEX.”
“We will see a portion of the fleet phased completely out of the market and laying up somewhere, and for those still operating the Mewis Duct will be even more worthwhile because the faster vessel consumes more fuel than the slower.”
As in many sectors, then, the oil price tumble will yield its winners and losers. The shipyard industry in Germany is just now beginning to find out which is which.