Day one of Riviera Maritime Media’s Middle East Offshore Support Journal Conference concluded with delegates’ ears ringing with a mix of outstandingly good news as well as familiar challenges and complaints.
The good news is the exceptional market prospects offered by the mega offshore projects set to commission over the next five years. Between now and 2024, at least US$130Bn has been earmarked for offshore development. ADNOC plans to ramp up its production to 4 mbpd by 2020 and 5 mbpd by 2030. Work is also underway on the Hail and Ghasha artificial island projects. They will need as many as 160 vessels over the next 2-4 years.
A continuing concern for smaller operators and some of the international operators in the room is managing the dominant position held by the region's national oil companies, stagnant rates and delayed payments.
One operator was moved to remark that in the Middle East, “any kind of payment, whenever you get it, is a reason to celebrate”. The view was that many companies were operating “giant Ponzi schemes” by delaying payments and using that cash to fund assets or acquisitions. Ominously, such schemes are seen as a long-term regional fixture because the necessary legislative framework to combat it is not in place. Smaller operators lack the means and incentive to take action and are fearful any remedial action will see them blacklisted on future projects.
For operators of older tonnage there was encouraging news: the belief is that there is still work for their vessels. They are beneficiaries of a flexible approach to age requirements in line with prevailing economics. An oil major or international contractor might strictly define age requirements at the start of a project but relax these requirements according to vessel availability and need. The continued trading of these older vessels keeps rates down in a market challenged by a wave of vessels entering the sector from outside the region looking to undercut local operators.
The future was seen as a two or even three-tiered market. Oil majors will work with larger operators with vessels aged 12 years and younger and smaller producers will work with smaller operators working with older vessels. A potential third premium tier would comprise of operators able to offer value-added services that go beyond pure transportation. Logistical support was seen as one obvious area.
Meeting ever-increasing local content requirements is a concern and there is some foreboding that turnkey lump-sum contracts will put contractors under pressure to take the cheapest option when tendering for vessels. This pressure was not translating in a lowering in safety standards. Rather, oil majors are taking a hardline approach to vetting standards. The message is that with the mega projects ahead they simply do not have the time to deviate from the strictest applications of the rules.
None of this should obscure the clear sense that the market has passed the worst, or that sizeable opportunities exist on the immediate horizon. Opportunities are especially prospective for multi-construction vessels.
There is also a clear belief that the myriad opportunities offered by new technologies, and especially digitalisation, have yet to be grasped. But then again this is a key topic for day two's agenda
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