Extremely difficult! 2016 global offshore market forecast

2016-01-12 09:00

According to a recent report by UK energy consulting firm Douglas-Westwood (DW), 2015 was a difficult year for the global offshore marine market, with reduced spending, widespread layoffs, and bankruptcies becoming commonplace. DW predicts that 2016 will also be a very challenging year for the global offshore marine market, but it may also present a unique opportunity for some companies.

The offshore marine industry experienced its worst downturn in 2015

In a report released late last year, Douglas-Westwood (DW) stated that the offshore marine industry experienced its worst downturn in over a decade in 2015.

The offshore drilling rig market (vessel type, shipyard, sales) continues to face oversupply issues, leading to a significant drop in daily rig rental rates. Many drilling rigs were ordered during the previous market boom and have recently entered operation. In addition, demand in the newbuild drilling rig market is almost zero. Due to the unresolved oversupply issue, daily rig rental rates are unlikely to recover in the short term. Drilling ships (vessel type, shipyard, sales) are also having to continue delaying the delivery of rigs under construction and considering scrapping uncompetitive rigs.

Unlike the drilling market, offshore installation activities remain active this year thanks to a large backlog of subsea contracts. For example, major pipeline installation work for large projects such as Ichthys and Polarled was completed this year. Subsea installation activities also remain robust in West Africa and Latin America, as Petrobras continues to focus on deepwater oil and gas production. Capital-intensive deepwater projects are continuing to be developed offshore West Africa, including Total's Egina field and Shell's Bonga field. However, DW believes that the subsea installation market has not yet bottomed out, and global subsea tree installations will decrease by at least 15% next year.

Nevertheless, DW points out that the current low oil prices are unlikely to be sustained in the long term. Many market observers believe that the market oversupply will continue into 2016. However, there are signs that the market supply-demand gap may begin to narrow by the end of 2016. The International Energy Agency (IEA) recently projected that oil demand will increase by 1.2 million barrels per day in 2016; DW projects a net increase in oil demand of only 250,000 barrels per day.

Overall, DW believes that the offshore marine industry can see a glimmer of hope, but market recovery may still take some time.

The offshore marine market still faces severe challenges in 2016

DW points out that the recent price movements of commodities have not helped the industry. In late December, Moody's lowered its oil price forecast for 2016 by 17%, the lowest level for Brent crude since 2004, and Iran's increased oil exports could exacerbate the oil glut. Overall, the market will face challenges as severe as those in 2015 in 2016.

If oil prices remain low, it is certain that M&A activity will become commonplace in 2016. Cost savings are essential to ensure future sustainability. Optimizing projects and improving supply chains will be key to reducing costs. However, given the current oil prices, industry consolidation will be a key step in ensuring project cost advantages.

Two major mergers may occur in 2016: Shell's acquisition of BG and Halliburton's acquisition of Baker Hughes. Merger and acquisition activity is very clear, and companies with strong balance sheets will benefit from this round of mergers and acquisitions. This is particularly clear in the drilling industry, where oil prices have been falling since 2014, and drilling companies have relied on the credit market to survive. However, with oil prices falling to less than $40 per barrel, drilling companies have had to seek new partners to survive.

DW concludes that 2016 is expected to be a very challenging year, but it is also a unique opportunity for some companies.

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Xi Jinping inspected a port container ship in Chongqing.

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