Global Pressures on Transport and Logistics

31 March 2008 (Last Updated March 31st, 2008 18:30)

The offshore maintenance, modification and operations market is expected to grow significantly in the next five years. Operators are extending the lives of ageing structures, industry analysts predict that demand is set for significant growth. Nigel Ash looks at how wide-ranging resource shortages in the exploration and production sector are now being mirrored in the supply sector.

Global Pressures on Transport and Logistics
A Royal Air Force Nimrod was used to evacuate the accommodation platform Safe Scandinavia, 130 miles off the Scottish coast, after the report of a suspicious device.

At the end of 2006, the demand for some offshore supply vessels (OSVs) was so great that the day charter rate of an anchor-handling tug meant the new build cost of a vessel could be recovered in just 100 days of North Sea Operations. The challenge is to get such OSVs built in Asian yards, but they are fully booked, particularly with Indian and Chinese offshore.

CRAFT SHORTAGE

For John Westwood, managing director of Douglas-Westwood, the high rates are symptomatic of a wider challenge for the whole oil and gas industry: "The real crunch at the moment is the general lack of both physical and human resources," says Westwood.

"High charter rates are symptomatic of a wider challenge for the whole oil and gas industry."

The North Sea and the Gulf of Mexico (GoM), unlike West Africa and Brazil where long-term transport deals have become the norm, have always been a spot market for OSVs. Crew boats are the cheapest, next are the supply vessels, then the technical vessels, such as anchor handling tugs, which now hire for some $200,000 a day – opposed to $15,000 five years ago. The daily charter rate increase for supply vessels has been less dramatic, but has nevertheless slightly more than doubled over the same period.

The shortage of craft is reflected in the frantic rate of new builds in Asian yards. Last year, China's new Titan Quanzhou Shipyard launched its first two vessels, bunker tankers, while the rest of the yard was still being completed. With a finished capacity of 26 specialist support vessels a year, it already has a $210m-worth of orders booked from customers in Hong Kong, Singapore and Norway.

The range of offshore support vessels, besides crew, supply and anchor handling tugs, includes safety stand by vessels, construction and drilling support boats and marine survey ships.

In the last category, the global demand for seismic vessels now exceeds supply and according to a US analyst the problem does not end there: "There are not enough experienced seismic professionals able to man the vessels already commissioned, let alone those now building. This is ironic because land-side the ability of seismic specialists to take fresh data and model reservoirs has never been greater."

MARKET ANALYSIS

Ken Gibbons, director of the Association of British Offshore Industries (ABOI) cautions that in general the transport and logistical supply markets should be seen as separate, with operators working in close and long-term partnerships with logistical suppliers. He also notes the division between normal and abnormal deliveries, the latter well-developed and commanding a premium, while routine services were supplied efficiently by a slimmer group of people.

"The global demand for seismic vessels now exceeds supply."

The major offshore supply players in the North Sea are international companies, including: Tidewater, Seacor, Trico Marine, Gulfmark and Hornbeck, who hold some 61% of the market. The rest of the market is fragmented and made up of a large number of local companies offering marine services.

Douglas-Westwood estimates that the operational expenditure in the global offshore logistics market now stands above $22bn a year. Mature markets, such as the North Sea and GoM, have the highest new entry barriers because of stringent safety and legal regulations.

The fastest expansion is in the Asian and African markets, but the offshore MMO market is growing in the North Sea and GoM as operators seek to extend the life of ageing structures. In Scottish Enterprise's recent report (Douglas-Westwood: Offshore Maintenance, Modifications and Operations Report), logistics accounted for 22% of the MMO market spend, in 2007, in the North Sea. This figure is expected to grow significantly in the next five years.

Included in this projected growth is the eventual decommissioning of many platforms. Even though the majority of the spend on offshore logistics is going on marine vessels, due to tough conditions in the North Sea, crew movements are often performed by helicopter. Aberdeen's heliport is one of the world's busiest.

"The shortage of craft is reflected in the frantic rate of new builds in Asian yards."

The Scottish Enterprise report predicts that the North Sea is already the largest regional market for oil and gas-based helicopter logistics (with around three million flights a year, 90% of these to offshore platforms), followed by the US. However, while the US market is slated to grow strongly in the next five years, the North Sea will see an actual doubling of helicopter activity.

The principal operators are CHC Helicopter, Bristow, Petroleum Helicopters (PHI) and Seacor who account for around three quarters of the North Sea market. An indication of how alarmed some operators have become at future supply constraints was demonstrated by StatoilHydro's June 2007 deal with CHC to secure up to nine helicopters in a deal worth $1.1bn over five years. The Norwegian operator has probably pulled off a useful coup here.

PRICE PRESSURES

Thom Payne of Douglas-Westwood calculates that the North Sea market for operational flights, which stood at $2.2bn in 2006, will be driven by rising day rates to $4.3bn by 2011. Payne argues that day rates have, in the past few years, mimicked oil prices, but now increased demands on an already under-resourced offshore supply sector, is likely to add to price pressures.

THE NORTH SEA

He takes the view that so great is the global pressure on capacity at all levels, from personnel through to logistics, operators in the North Sea in particular, are no longer prepared to take the risk of any E&P disruption.

"The North Sea market for operational flights will be driven by rising day rates to $4.3bn by 2011."

"People want to snap up services, not just for a year but for five years, because they are aware of the constraints in the industry," says Payne. "So someone will say that they are prepared to pay over the odds for five years because they want to make sure that they will have the helicopters they need in the North Sea, where in any event, you cannot cut back because of the safety regulations. I would say, therefore, that especially in the North Sea, most of the capacity has already been booked up."

Since the Piper Alpha and Alexander Kielland North Sea disasters, helicopters have assumed a heightened-safety role. The emergency air evacuation in February, of 161 staff from accommodation platform Safe Scandinavia, 130 miles off the Scottish coast, was hailed by the authorities as a text book example of how well long-rehearsed, emergency procedures worked.

The helicopter evacuation and return of personnel cost around $1m. Given the $600,000 a day average rig time, the additional closure of a neighbouring production platform will also have had major cost implications, along with lost production.