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Middle East OSV recovery sees demand outstripping supply

Photo: YouTube screenshot The 'Zamil 59', part of the OSV Fleet of Saudi Operator, Zamil Offshore (Zamil Offshore--YouTube)[12].jpg
Middle East offshore supply vessel (OSV) capacity utilisation now stands at 85%, with demand now exceeding current supply.

“Most of the vessels that were there that were going to come back have come back and the rest are either too expensive or too old,” said Fazel Fazelbhoy, CEO, Synergy Offshore, who chaired a panel on the sector’s recovery at Marine Money Gulf in Dubai last week.

Earlier this week, Fazelbhoy told Seatrade Maritime News that the Middle East region was on the cusp of an OSV ‘Super Cycle’.

Chong Pin Hsu, CFO, Atlantic Navigation Holdings, said that in the Middle East, at least for his company, rates of 90% or 95% utilisation were apparent. “The current situation in the region remains tight because of demand—very high demand—as it does in other regions, especially Southeast Asia,” he said.

The question of whether newbuild in the OSV sector was imminent was uppermost in the panel’s mind.

“What we see on the ground with shipyards is that finance is available for some, and if it is available, it’s expensive. Especially in Europe, there is a large amount of ESG money available, but that can only be used for ESG. You need an electric boat or to buy something environmental, which is what’s happening in Europe at the moment,” Willem Moelker, Sales & Marketing Director, Damen Shipyards, said.

“At the moment, very few yards in the world have access to [significant] finance. Japan, Korea and Singapore have restructured. At Damen, we have some financing options, but everybody is busy balancing the shipyard books and there is no other finance available. It’s going to be very difficult.”

Fazelbhoy asked where the additional vessels required were going to come from.

Martin Helweg, CEO, P&O Maritime Logistics, said demand would continue to increase. Particularly in the Middle East, national oil companies had realised that there was a capacity gain going on and wanted to secure capacity because they wanted to secure production.

“I think they are going to come from the existing market first and foremost. We have seen rates go up by 40% in Africa, and 25%-30% here. Utilisation is also up here. The age restriction is going to be lifted: many oil companies work with 10-year, 15-year or 20-year restrictions, and I think those are going to be relaxed. You will then see a surge in rates and then you will see a wave of newbuilding. But those things have to happen first.”

Helweg expects oil and gas production to take place in particular in this part of the world “for the next many, many years.”

Friedrich Portner, VP Marketing, Abu Dhabi Ports, was in agreement.  “First of all, everything that can come back has come back. I don’t think there is more. Currently, it’s a game of who wants to sell and who wants to buy—and who believes in the future. Some of the banks and private equity funds, and some of the owners, are selling because now values have risen 40% or 50% and they need to cash out after so many years,” he said.

He identifies what he refers to as a ‘reshift’ taking place today, but this is not increasing the size of the OSV pool, but simply leading to a shift in ownership. This problem will continue for the next two years.

Alex Macdonald, Co-Founder of consultancy, Safana Maritime, believes Saudi Arabia is a regional standout.

“I think especially if you’re in Saudi Arabia, your relationships with local banks are very strong and obviously underpinned by long-term charters,” Alex Macdonald, , Safana Maritime.

He said the issue of age restrictions was an important factor in the region and added that if the NOCs did drop or waive them, even on an asset-by-asset basis, that would help. The way NOCs contracted led to the long-term hoarding of assets on a very insular basis—Saudi- or Abu Dhabi-based contracts did not help on the flow or utilisation of assets.

“Having an older fleet with a spot market would actually be quite interesting in this region because it would give more flexibility of assets and ability to earn on all the vessels without the NOCs having to take on long-term risk, on chartering all the vessels. There are options available, but it needs to be driven by the requirement to be more flexible on how they contract,” he said.

Helweg believes the renewables sector is eating into the capacity of the OSV fleet to drive a more green decarbonisation agenda than the oil companies’. However, he thinks it won’t be long before the oil companies, especially the IOCs—led by the Europeans—will start to take steps to address this.

“I think it’s then going to be the NOCs, in particular in this part of the world, and the Americans, and so on. The biggest challenge for the OSV market, in my opinion, is the contracting model: it doesn’t facilitate a decarbonisation agenda,” he said.

“The simple reason is that I don’t pay for my own view and I don’t determine where my vessel will go. It doesn’t count as Tier 3 in my CO2—but as Tier 1 for my customer. Anything that has to happen right now with that structure means that it has to be driven by the customer, not by the operator. That, I think, is a challenge.”