The continued decline in oil prices has dealt a heavy blow to the offshore engineering market

2015-08-25 09:00

It is understood that since mid-2014, crude oil prices have fallen by about 50%. The decline in oil prices has eased the pressure on merchant ships to some extent, but it has dealt a heavy blow to the offshore engineering market. Due to delays and cost overruns in oil field development, operators are facing cash flow problems. In order to alleviate the crisis, operators have had to drastically cut exploration and production costs. It is expected that exploration and production costs in the offshore engineering market will decrease by 19% this year.

The reduction in exploration and development costs means that investment decisions for new projects have been postponed, and spending on improving oil recovery rates in existing oil fields has also been reduced. Correspondingly, the demand for the offshore drilling market has declined. However, the delivery of newly built jack-up drilling rigs and floating drilling rigs (including semi-submersible drilling rigs and drillships) is accelerating. Currently, the daily charter rate for ultra-deepwater floating drilling rigs has dropped to approximately US$300,000, a decrease of nearly 50% compared to the peak in late 2013. At the same time, the daily charter rate for jack-up drilling rigs has also fallen by more than 35%, to approximately US$100,000, with fleet utilization below 80%.

The downturn in the offshore drilling market has also led to a decline in the offshore engineering vessel market. Currently, there are 1133 shipowners with a total of 5365 OSVs. Due to the reduced demand for exploration drilling and operational oil field maintenance, the OSV market is facing pressure. The decrease in the number of active drilling rigs has led to a decline in demand for AHTS vessels used for towing and positioning drilling rigs, while the demand for PSVs mainly comes from the offshore facilities (drilling rigs, mobile and fixed production platforms) sector. The average daily charter rate for OSVs has fallen by 35% globally. In addition, the large backlog of PSV orders poses another major problem for the market. Currently, the backlog of PSV orders over 4000 DWT accounts for nearly 40% of the existing fleet.

Despite this, considering the cyclical nature of the offshore engineering market, the current global oversupply of oil is only a short-term problem. In the long term, expected demand trends indicate that oil prices will rise again, and the offshore engineering market will eventually recover.

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