The Last of the Old Generation or the Start of the New?

Last week saw the announcement that the delivery of Allseas’ huge platform installation and decommissioning vessel, Pioneering Spirit, has been delayed until the first half of 2016.

The ship, formerly named the Peter Schelte, is the world's largest vessel in terms of its gross tonnage, 403,342gt, its breadth, 123.75m (406 feet), and its displacement, 900,000 tons.

Ship broker Seabrokers says the 382m (1,250 feet) vessel, which has a maximum lift of 48,000 tonnes, was due to enter into service in the North Sea this summer but will now be delayed largely due to the late delivery of lift beam components.

Allseas has reportedly advised Shell and Statoil of the revised delivery schedule, as the vessel was due to remove platforms for Shell in the Brent field and to carry out an installation contract on the Johan Sverdup field for Statoil.

Douglas-Westwood analyst, Mark Adeosun, author of The World Subsea Vessel Operations Market Forecast 2016-2020, says the vessel has unique versatility. While it has been built largely for the decommissioning market, it is also capable of subsea construction and pipelay operations. “Decommissioning is where the uniqueness of the vessel shines through,” says Adeosun. “It will be used to lift the 24,000 tonne Brent Delta topside, something that no other vessel could achieve in a single lift. The weight and size that this vessel can lift really sets it apart from other vessels in the market.”

There’s a “but” though. “The competitiveness of the vessel, in terms of its daily charter rate (DCR), is unproven. The vessel’s DCR is likely to be high in order to offset its operating expenditure. The vessel is arguably over complicated and could price itself out of the pipelay and construction market. Until more actual contracts have been awarded, it is difficult to really draw a conclusion on its competitiveness,” says Adeosun.

Entering a Challenging Market

Pioneering Spirit will be entering challenging market conditions. Subsea vessel providers have been taking additional measures to help strengthen their financial position and stem oversupply in the market by deferring newbuilds.

Douglas-Westwood believes that it is unlikely that day rates have bottomed out. Instead, across the global subsea vessel fleet, a 2014-15 decline of at least 30 percent in day rates is not unlikely before prices stabilise.

Vessel supply has increased in recent years due to the current build cycle, which was originally driven by high oil prices and increased demand for higher specification vessels. Recent order intakes have been relatively low, and this is not expected to change for some time, marking an end to the current newbuild cycle.

“The most recent build cycle marked advancement in the vessel fleet with the delivery of larger and higher specification vessels which are required for the challenges of deepwater development,” says Adeosun. In recent years, subsea vessel owners have been more interested in building higher specification vessels which has led to under investment in low specification vessels.

Operators are also retiring older vessels with lower capacities and higher operating costs, particularly vessels delivered during the first build cycle that took place between 1973 and 1987.

The evolution of vessels supplied in the recent build cycle (2006-2015) has improved the capabilities and dynamism of available units. Vessels have become increasingly multi-purpose in order to reduce over-dependence on a specific market, says Adeosun. All vessel types except pipelay vessels are capable of carrying out both subsea construction and IRM services. Hence, the flexibility of Pioneering Spirit despite its primary purpose.

A New Start

With eventual market recovery towards 2020, subsea vessel day demand is set to grow at a 5.2 percent compound annual growth rate (CAGR) over the next five years. Global subsea vessel operations expenditure is expected to increase by 29 percent compared to the preceding five-year period, totalling $97.7 billion from 2016 to 2020.

Field development (36 percent) and inspection, repair and maintenance (IRM) (40 percent) are expected to remain the principal drivers of global subsea vessel demand and expenditure. As production in shallow water basins declines, activities in deeper water are set to increase.

North America, Africa and Latin America are to account for 47.5 percent of global expenditure between 2016 and 2020. The “golden triangle” remains vital to subsea vessel demand despite falling oil prices, project delays and political instability associated with Africa. The development of East African gas basins in the Indian Ocean will contribute to subsea vessel demand in the latter years of the forecast period.

“It is pertinent to state that a handful of big projects will not be able to turn the market around to recovery,” says Adeosun. “However, the further development of big projects is a good indication that exploration and production companies are expecting to see a recovery in the market environment at some point in the future.”

Big deepwater projects such as Shell’s Bonga South West in Nigeria, Petrobras’ Libra and Lula deepwater development in the Santos Basin, BP’s Mad Phase II and the commencement of offshore activities at ENI’s Area 4 in Mozambique are examples of deepwater development that will restore positivity in the market. Major pipeline projects such as the Nord Stream 2, the SAGE pipeline and the Sepat gas pipeline are also forecast to drive vessel demand until the end of the decade.

Asia will be the single largest market with an anticipated 18.7 percent of expenditure over the next five years, largely driven by shallow water IRM and pipelay-related activities. Australasia has the fastest growth rate of all of the regions at a 46.8 percent CAGR due to massive offshore gas field developments. Activity in the Middle East represents nine percent of the total predicted global subsea vessel expenditure.

Where Pioneering Spirit will be in 2020 is yet to be seen. It could be leading a new era of multi-purpose subsea construction vessels, or it could remain a reminder of past glory set to work almost exclusively in the decommissioning market.