According to Clarkson's data, as of the first half of 2024, the global offshore market total turnover reached 72 units/ships, about USD 15.7 billion, a year-on-year decrease of 31% in quantity, but a year-on-year increase of 59% in amount.
Wisdom Finance APP learned that on July 31, the China Shipbuilding Industry Association issued a document stating that from January to April, the overall performance of the global offshore market was generally stable and did not experience any major fluctuations. At the end of May, with the landing of two super large FPSO orders from Petrobras worth USD 8.15 billion, the global offshore market's turnover amount was booked to grow a year ahead of schedule in just five months. The 12 orders in June further consolidated the market's growth trend. According to Clarkson's data, as of the first half of 2024, the global offshore market had a total turnover of 72 units/ships, worth about USD 15.7 billion, a year-on-year decrease of 31% in quantity, but a year-on-year increase of 59% in amount, which is 22% more than the total turnover of orders in 2023.
From the perspective of product structure, offshore oil and gas-related equipment is definitely the main force. Orders for floating production equipment such as FPSO and FLNG are active. In addition to Petrobras' two FPSOs, South Korea's Samsung Heavy Industries has obtained the CEDAR FLNG project, with a contract amount of about USD 1.5 billion, and Huisun Clean Energy has obtained a nearly USD 1 billion FLNG contract. These three floating production equipment orders alone cost more than tens of billions of dollars. In addition, orders for offshore support vessels are also surging. Mawei Shipbuilding has won an order for 4+2+2 94.76-meter platform supply vessels from Greek shipowners. It has been almost ten years since the last time the company received offshore support vessel orders.
In addition, the transactions of offshore wind power vessels are still active, and orders for various types of vessels such as cable laying vessels, lifting vessels, and maintenance vessels are not uncommon. The Belgian Jan De Nul Group signed a contract with China Merchants Industry for a "global largest" cable laying ship with a cable capacity of up to 28,000 tons. COSCO Shipyard SG obtained an order for a wind power installation vessel from the Danish shipowner Cadeler, worth USD 0.4 billion. In addition, the demand for offshore wind power operation and maintenance driven by European offshore wind power has led to the demand for equipment such as offshore wind power operation and maintenance ships (SOV) and commissioning service operation and maintenance vessels (CSOV), and a total of 13 related vessels have been sold.
The price of offshore equipment continues to increase and is close to the price level of the peak in 2008. The price index for mobile drilling equipment and offshore support vessels has risen by more than 10% year-on-year, and is already very close to the historical peak. Price growth is mainly affected by shipyard supply-side tensions. As the conventional transport ship market orders are still very hot, most offshore companies reserve their production capacity for market star ship types such as auto transport ships, LNG ships, and container ships. The delivery time for some shipyards' ships under construction has been scheduled as far as 2028. There are very few shipyards that are capable and willing to undertake offshore orders.
Behind the super large orders, opportunities brought by changes in the global energy supply structure
Since this year, several super high-value FPSO and FLNG orders have been signed one after another, becoming the backbone of the recovery of the offshore market. Analyzing the reasons behind them, it can be found that due to frequent geopolitical events in the past few years, the global energy supply structure has undergone obvious changes. Benefiting from the demand for increased production and diversified exports of oil and gas in some emerging countries, the offshore equipment market is ushering in new development opportunities. For a long time, Europe's natural gas supply has mainly relied on Russia's supply. Data shows that before the Russia-Ukraine conflict, more than 40% of Europe's natural gas came from Russia. In September 2022, the explosion of the "Nord Stream" natural gas pipeline exported from Russia to Europe caused Europe to seek alternative supply from other regions such as West Africa, North America, and Latin America to fill the energy supply gap. The global energy supply structure has also changed, leading to the demand for related offshore equipment.
2 FPSO orders in Brazil: the growth path opened by the new presidential cycle
In the past few years, Petrobras has been the focus of the offshore market. Among the 12 FPSO orders traded since 2022, Petrobras ordered five of them. Previously, Petrobras was deeply involved in a corruption scandal, and President Lula was imprisoned for corruption charges. Later, Lula successfully overturned the judgment and was elected President in 2022. At the beginning of 2023, Lula launched a reform of Petrobras, continuously increased investment in the development of the Brazilian presalt oil field, and promoted a significant increase in oil production. Data shows that Petrobras plans to invest USD 102 billion in 2024-2028, an increase of 31% from the previous period, to continue to increase its production. After the epidemic and the Russia-Ukraine conflict, Brazil's oil exports to the EU increased significantly, and Brazil's share of crude oil sales to Europe increased from 6.9% to 23%.
In such a background, in May of this year, Petrobras and Singapore's Seatrium signed a general package contract for 2 FPSOs, with a contract value of about 11 billion Singapore dollars (approximately RMB 59.037 billion), further supporting Brazil's ambitious production increase.
Cedar LNG project in Canada: seizing the opportunity of the energy crisis to promote export diversification.
Canada has abundant oil and gas production, which used to be mainly exported to the United States through pipelines. After the US shale gas revolution, Canada's natural gas exports to the US gradually decreased, forcing it to seek other markets. Although Canada has planned multiple LNG export facilities before, the project progress has been slow due to environmental considerations. In 2022, due to the energy shortage and price surge caused by the Russia-Ukraine conflict, Canada also seized the opportunity and increased investment in LNG export facilities to promote its LNG export diversification and seize the opportunities brought by changes in global natural gas trade patterns.
In June of this year, Canadian oil and gas company Pembina Pipeline made a final investment decision on a floating liquefied natural gas (FLNG) ship with an annual production capacity of 3.3 million tons for the Cedar LNG project. The ship is jointly constructed by Samsung Heavy Industries and Black & Veatch, with an order amount of approximately 1.5 billion US dollars. The project is located on the west coast of Canada and will become the country's third LNG export facility after completion. The project party has signed a 20-year agreement with ARC Resources Ltd, aiming to mainly meet the natural gas demand of Asian countries in the future.
Yunding Petroleum and Natural Gas Co., Ltd.'s FLNG project in Indonesia: meeting the domestic natural gas demand brought by industrial transfer.
Indonesia has abundant natural gas resources, and used to be a major exporter of natural gas, with a global export share of up to 40%. Its natural gas resources are mainly distributed in the sea. In the past decade, except for the year of the 2008 financial crisis and the year of the pandemic, its economic growth has mostly remained at around 5%. Thanks to the low labor cost, Indonesia has undertaken the spillover demand of international industrial transfer, and the manufacturing industry has developed rapidly, and the domestic natural gas consumption demand has also increased. In 2023, Indonesia proposed to stop natural gas exports from 2036 and use 100% of natural gas to meet domestic demand.
This June, Huisen and Yunding Petroleum and Natural Gas Co., Ltd. signed a contract for an FLNG with an annual production capacity of 1.2 million tons, using Huisen's standardized design (high-efficiency liquefaction process and hull). It plans to be deployed in West Papua Province, Indonesia, and is also Indonesia's first FLNG facility. By using FLNG, Indonesia will be able to develop natural gas resources quickly and cost-effectively, and prioritize meeting its domestic natural gas demand.
Shipowners' profitable right turning point is accelerating, and downstream optimism is rising.
(1) Rental utilization rate remains high.
The contradiction between supply and demand of offshore engineering equipment has intensified. In the field of offshore drilling platforms, the inventory of drilling platforms has been gradually exhausted since 2013, with a total of 287 offshore drilling platforms delivered worldwide. As of June 2024, shipyards around the world hold orders for only 34 drilling platforms. At the same time, the number of drilling platform fleets worldwide has continued to decline, and the current number of fleets in service is only 823, a decrease of 20% from the peak in 2013. The surplus capacity on the supply side has basically been cleared, and the average utilization rate worldwide continues to operate at a high level of around 88%. The rental of offshore engineering equipment has also continued to increase. As of June 2024, the rental index of self-elevating drilling platforms and floating drilling platforms increased by 16% and 14% respectively year-on-year.
(2) Industry integration enters a new stage.
In recent years, the integration and reorganization of offshore owners have been ongoing, especially in the field of offshore drilling equipment. In the first half of this year, US offshore drilling contractor Noble Corporation announced the acquisition of Diamond Offshore, and the merged owner has 41 drilling platforms with a contract value of 6.5 billion US dollars. Data shows that the profitability of the two owners has been showing a trend of improvement. Noble Corporation achieved a turnaround in 2021, with a net income of 0.482 billion US dollars in 2023, a year-on-year increase of 185%. Diamond Offshore, although it lost US$44.71 million in 2023, reduced its loss by 57% compared to 2022, and its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was US$0.158 billion, a year-on-year increase of 350%. The rankings of the two owners before the merger were 7th and 17th in the world, respectively, and the number of offshore drilling platform fleets ranked fourth in the world after the merger. In addition, DOF Group recently announced that it will pay approximately US$1.1 billion to acquire Maersk Supply Service, which will create one of the largest oilfield service companies listed on the Oslo Stock Exchange, with an expected market capitalization of US$2.3 billion.
If the industry integration in the past few years was more like "huddling for warmth", the current integration of the offshore industry is more like the alliance of the strong after returning to the right track. Looking at the recent merger and acquisition cases in the past two years, the frequency of appearance of offshore super owners is increasing. The owners are enhancing their overall strength through integration, playing a synergistic role, reducing operating costs, and then better developing markets and expanding their scale.
Future outlook.
(1) The demand for offshore wind power ships is still increasing.
Recently, the Global Wind Energy Council (GWEC) released the "2024 Global Offshore Wind Report", which pointed out that it is expected to add 410 GW of offshore wind power installed capacity from 2024 to 2033, which is 5.5 times the current global cumulative installed capacity. China and Europe are still the most noteworthy regions, and other Asia-Pacific countries except China also occupy an important position.
On the domestic front, with the end of the rush to install and the batch delivery of wind power installation ships, the demand for leasing installation ships has declined, and the orders for new wind power installation ships are decreasing. However, at the same time, the demands for cable-laying ships, lifting ships, and other orders are still increasing. On the international market front, the growth in demand from new offshore wind power countries such as South Korea, Vietnam, and Japan from "0" to "1" will bring more opportunities. Most of these countries' offshore wind power construction is still in the initial stage, but they have set ambitious development goals. As offshore wind power projects are being landed and pushed forward, there is a significant shortage of ship supplies, and the future market potential is worth looking forward to. For example, in the first half of this year, Mitsui OSK Lines and Taizhou Sanfu Ship Engineering signed a contract to build a module transport ship. This ship is Japan's first nearshore module transport ship for transporting offshore wind turbine component parts. In addition, these countries are also meeting short-term demand through the leasing of ships. For example, Daewoo Construction and China Communications Tianjin Navigation Bureau signed an exclusive business agreement for the use of the "Ganghang Ping 5" wind power installation ship in Korea in the first half of this year, and Jiangsu Zhongtian Technology also granted the Korean Maritime Technology Company (KOSECO) exclusive rights to use or lease its five wind power installation ships.
On the international market front, the growth in demand from new offshore wind power countries such as South Korea, Vietnam, and Japan from "0" to "1" will bring more opportunities. Most of these countries' offshore wind power construction is still in the initial stage, but they have set ambitious development goals. As offshore wind power projects are being landed and pushed forward, there is a significant shortage of ship supplies, and the future market potential is worth looking forward to. For example, in the first half of this year, Mitsui OSK Lines and Taizhou Sanfu Ship Engineering signed a contract to build a module transport ship. This ship is Japan's first nearshore module transport ship for transporting offshore wind turbine component parts. In addition, these countries are also meeting short-term demand through the leasing of ships. For example, Daewoo Construction and China Communications Tianjin Navigation Bureau signed an exclusive business agreement for the use of the "Ganghang Ping 5" wind power installation ship in Korea in the first half of this year, and Jiangsu Zhongtian Technology also granted the Korean Maritime Technology Company (KOSECO) exclusive rights to use or lease its five wind power installation ships.
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Oil and gas capital expenditures are expected to be optimistic, and more orders are expected to be released.
Stable international oil prices have injected confidence into the downstream market of offshore equipment. Since the negative oil price incident in 2020, international oil prices have shown a steady upward trend. Since then, affected by geopolitical events and sanctions imposed by the United States and the European Union against Russia, as well as the continuous production cuts of OPEC+, international oil prices have once climbed to a high of $120 per barrel. In recent years, although there has been no significant growth in the total demand for global crude oil, concerns about the supply side have supported oil prices to operate at high levels around $80 per barrel due to frequent international geopolitical conflicts. Oil companies' profitability remains good, and they have maintained a high level of capital expenditure, and downstream offshore equipment demand is very active. From the perspective of capital expenditure, in 2023, global offshore oil and gas development capital expenditures are $123.5 billion, a new high in nearly a decade. In the past few years, although oil companies have vigorously promoted energy transformation in publicity, from actual investment, the proportion of ocean new energy investment is still limited, and investment in offshore oil and gas is increasing rather than decreasing. According to data from the International Energy Agency, although the average annual revenue of oil and gas companies has been $3.5 trillion since 2018, their investment in clean energy accounts for only 2.5% of their total investment, accounting for about 1% of global clean energy expenditures, of which 60% comes from four companies among thousands of producers. In addition, thanks to the spillover demand brought about by geopolitical events to continue to increase oil and gas production, the demand for high-priced quality offshore equipment such as FPSO and FLNG in West Africa, Latin America, and the Asia-Pacific region is considerable. Clarkson's data shows that the potential demand for FPSO and FLNG orders will exceed 100 vessels from 2024 to 2026.
From the perspective of capital expenditure, in 2023, global offshore oil and gas development capital expenditures are $123.5 billion, a new high in nearly a decade. In the past few years, although oil companies have vigorously promoted energy transformation in publicity, from actual investment, the proportion of ocean new energy investment is still limited, and investment in offshore oil and gas is increasing rather than decreasing. According to data from the International Energy Agency, although the average annual revenue of oil and gas companies has been $3.5 trillion since 2018, their investment in clean energy accounts for only 2.5% of their total investment, accounting for about 1% of global clean energy expenditures, of which 60% comes from four companies among thousands of producers. In addition, thanks to the spillover demand brought about by geopolitical events to continue to increase oil and gas production, the demand for high-priced quality offshore equipment such as FPSO and FLNG in West Africa, Latin America, and the Asia-Pacific region is considerable. Clarkson's data shows that the potential demand for FPSO and FLNG orders will exceed 100 vessels from 2024 to 2026.
Summary:
From the perspective of order transactions, the accelerated growth of the global marine industry market seems to have been completed in an instant this year. However, tracing its roots, we can find that geopolitical events in the past two years undoubtedly played a role in pushing the wave, and some good signs appeared as early as 2023, such as the continuous growth of ship rents and the continued high utilization of equipment. However, due to the complexity and long-term nature of investment decisions for offshore oil and gas projects, the changes in the marine industry market are not as rapid as those in the conventional shipping market, but require a quantitative change to a qualitative change process.
In addition, under the increasingly uncertain external environment, unexpected events have further supported the rise in oil and gas prices and highlighted the importance of energy supply security. Therefore, although the world's energy supply is generally sufficient, in the case of seeking diversified energy supply, the importance of energy security outweighs efficiency, and the balance of the marine industry market will inevitably be broken, which will also promote the landing of more orders.