Fleeting moment or steady recovery? Review of the marine engineering market in 2022

After years of dormancy, the global offshore engineering market finally saw a glimmer of hope at the end of the tunnel in 2022. The "bonus" of high oil prices spread rapidly to the equipment manufacturing sector, and the "tailwind" of the offshore wind power industry continued to stimulate market vitality. The long-dormant downstream demand steadily rebounded, and the marine engineering equipment industry is regaining the favor of capital. Looking ahead to 2023, although the macroeconomic situation remains complex and severe, under the trend of energy security and energy greening, the demand for offshore oil and gas and offshore wind power development is still expected to remain active. A new cycle of replacement is underway, and the global offshore engineering market is accumulating new momentum for a new round of growth.

I. Construction Market: Prices Rise as Volume Falls, Global Offshore Engineering Market Continues Recovery

Order transaction value surged, and the global marine engineering equipment market saw a restorative rebound. Clarkson data shows that a total of 137 offshore engineering equipment units were traded globally in 2022, a year-on-year decrease of 14%; the transaction value was US\$25 billion, a year-on-year increase of 68%. From the perspective of sub-types, production and storage and transportation equipment, represented by FPSOs, accounted for 23 units/vessels with a value of approximately US\$16.5 billion, accounting for 67% of the total value, becoming the backbone force supporting the recovery of the offshore engineering market. The number of construction and engineering equipment transactions was 94 units/vessels, with a value of US\$7.8 billion, accounting for 32%, mainly offshore wind power engineering vessels, including offshore wind power installation vessels, cranes, and cable-laying vessels. There were zero transactions in the new construction market for mobile drilling platforms. The transaction value of marine survey equipment and offshore support vessels accounted for less than 2%, with less than 20 vessels, but some orders are already underway. After years of bottoming out, the global offshore engineering market is entering a recovery period.  

"Chinese wind" leads the market, China has won the top spot in global offshore engineering orders for five consecutive years. Chinese shipyards frequently appeared in the offshore engineering market in 2022, receiving a total of 68 offshore engineering orders worth approximately US\$15 billion, once again winning the top spot in the global offshore engineering market. Domestic shipyards seized the opportunity brought about by the explosive growth in demand for offshore wind power vessels and actively sought international orders for offshore oil and gas equipment, further consolidating their market-leading position; Singapore shipyards received a total of 12 offshore engineering orders worth approximately US\$4 billion, ranking second globally in terms of order volume. With multiple FPSO orders from Petrobras, Singapore shipyards achieved a comeback at the end of the year, further narrowing the gap with Chinese shipyards; South Korean shipyards only received 5 offshore engineering orders worth approximately US\$3.2 billion. Although the number is small, with one semi-submersible production platform and one FPSO order, South Korean shipyards still ranked among the top three in terms of order value. European shipyards received a total of 19 offshore engineering orders worth approximately US\$1.1 billion, mainly offshore wind-related vessels.

Rising costs coupled with tight berths lead to significant price increases for various types of offshore engineering equipment. The new construction price of a 400-foot self-elevating drilling platform is approximately US\$230 million, a year-on-year increase of 35%; the new construction price of an 80-ton mooring tension three-use work vessel is approximately US\$15 million, a year-on-year increase of 25%. The reasons for this are, firstly, the increase in raw materials, equipment, and labor costs. Secondly, shipyards have relatively ample order books, and some shipyards have tight berths, which has improved the bargaining power of shipyards.

Completion and delivery remained stable, and inventory of offshore engineering equipment is being cleared. Since the beginning of this year, with the continued recovery of downstream oil and gas development demand, offshore engineering equipment ordered during the peak oil price period has been successively delivered to shipowners or obtained charters. Clarkson data shows that a total of 214 offshore engineering equipment units were completed and delivered in 2022, basically the same as in 2021.

II. Downstream Demand: Supply and Demand Tighten, Rental Utilization Rate Rises Steadily

        
From the perspective of downstream demand, offshore oil and gas development activities generally maintained an active trend, and equipment rental and utilization rates remained high. On the supply side, in recent years, new orders for offshore engineering equipment have been low, and the scrapping of old equipment has accelerated, leading to a decline in the global supply of marine engineering equipment fleets; on the demand side, the post-pandemic Russo-Ukrainian conflict has accelerated the reshaping of the global energy landscape, and energy security has become a focus of global attention. Offshore oil and gas development activities have accelerated, with the global utilization rate of self-elevating drilling platforms reaching 87%, and some popular areas have seen a trend of supply shortages, and equipment rental rates have also risen sharply, with the daily rental rate of self-elevating drilling platforms approaching US\$113,000/day.

III. Development Outlook: Diversified Demand, 2023 Still Worth Anticipating

International oil prices remain relatively high, and offshore oil and gas development remains "profitable." Since the outbreak of the COVID-19 pandemic, international oil prices have first fallen and then risen. In 2022, stimulated by the Russo-Ukrainian conflict, Brent crude oil futures prices once reached a high of US\$130/barrel, setting a new high since the financial crisis. Subsequently, affected by sluggish demand, the EU's price cap on Russian oil, and US interest rate hikes, international oil prices fell again to below US\$80/barrel by the end of the year. Looking ahead to 2023, due to concerns about the global economic outlook and crude oil demand, most institutions expect crude oil prices to fall, but they are expected to remain around US\$90/barrel. From the supply side, OPEC, Russia, and other major energy-producing countries still play an important role in oil price trends. If international crude oil prices continue to fall sharply, major oil-producing countries may reach an agreement to maintain oil price stability through production cuts. US shale oil producers no longer choose to blindly increase production when oil prices rise, but prioritize debt repayment to improve their balance sheets, which also provides reassurance for the stabilization of international oil prices.

From the perspective of offshore oil development costs, even an oil price of US\$80/barrel is still profitable for oil companies, and the motivation to continue expanding investment remains strong. According to Reuters, citing data from Rystad, the break-even cost of global discovered but unapproved offshore oil and gas development projects is only US\$40/barrel, far below the current international oil price. Major oil companies are still increasing investment. Petrobras, a Brazilian oil and gas giant, announced an increase of approximately 15% in its investment from 2023 to 2027 to US\$78 billion, and will also invest approximately US\$20 billion in leasing new platforms; ExxonMobil said its 2023 capital expenditure is close to the upper limit of its annual target of US\$20 billion to US\$25 billion, and expects to maintain this level until 2027; other companies that have indicated they will increase capital expenditure include Chevron and Total.

The leading position of offshore oil and gas equipment remains solid. Judging from the value of offshore engineering equipment traded in 2022, the leading position of offshore oil and gas equipment remains solid, especially floating production equipment represented by FPSOs. As offshore oil and gas "giants," although their numbers are small, the cost of a single vessel often amounts to tens of billions of dollars, and their leading position is unlikely to be replaced in the short term. In addition, although orders for major offshore oil and gas equipment such as self-elevating drilling platforms, semi-submersible drilling platforms, and offshore support vessels have been very scarce in recent years, judging from the active downstream demand, it is expected that related equipment orders will gradually materialize in 2023.

The rise of offshore wind power equipment is unstoppable. In recent years, with the strong support of national policies and the increasing cost competitiveness, the global newly installed capacity of offshore wind power has grown rapidly. Green and low-carbon has become a "common language" under the universally accepted values, and offshore wind power has become a "gathering place" for green capital, gaining favor in the capital market and attracting traditional shipowners to transform and enter the industry, leading to an explosive growth in orders for offshore wind power vessels. In the short term, China's offshore wind power development potential remains huge, and the demand for a shift from construction to construction + operation and maintenance will also generate more related vessel orders.

The cycle of replacement of old and new equipment has arrived. From the perspective of vessel age, by the end of 2022, the global fleet of ocean engineering equipment totaled 12,911 vessels, with an average age of 20 years, and 35% of the equipment was over 20 years old. For some equipment, such as oceanographic survey vessels, dredgers, and multi-purpose service platforms, the proportion of vessels over 20 years old exceeds 40%. These old vessels are far behind new marine engineering equipment in terms of operating efficiency and functional parameters, and dismantling and decommissioning is their ultimate destination. The dismantling cycle of old marine engineering equipment will arrive in the next few years, and the demand for marine engineering equipment is still worth looking forward to.