Asian OSV market 'set for next bull run'

In case you missed the good news late last week, DNB Bank recently released a detailed report about what it predicts to be an upcoming bull run in the OSV market. 

“2012 will be a major turning point in the OSV sector, an inflection point where the demand/supply balance will tighten further, in turn driving up rates and utilisation”. - DNB 

Read on for the full story that first appeared in Upstream:

This year will be “a major turning point” for the offshore support vessel (OSV) market in Asia which could be on the cusp of “the next sector bull cycle”, a new market report claimed.

Norwegian owners are said to be lining up anchor-handling tug supply (AHTS) orders while a fresh round of rig ordering could kick off once current newbuilds firm up high-priced contracts, the report from DNB Bank read.

There is currently “pent-up demand” for OSVs in the Asian market which favours vessel owners due to the tightness of demand and lower pace of newbuild orders.

“We believe we are in the initial phase of what could be the next sector bull cycle,” the bank’s latest report on the Asian offshore industry read, forecasting a 6% incremental growth in 2012 as against a 5% growth in the global fleet."

“The medium- to long-term fundamentals of the general offshore market outlook in Asia remain intact, supported by E&P [exploration & production] spending and a resilient oil price."

“In our opinion oil companies are unlikely to cut back on existing projects, having already reached a final investment decision and the long-term nature of these projects, averaging in excess of five years, providing support for activities.”

DNB continued that it expects that “2012 will be a major turning point in the OSV sector, an inflection point where the demand/supply balance will tighten further, in turn driving up rates and utilisation”.

The report contended that Norwegian owners are gearing up for AHTS orders, bucking the trend of ordering platform supply vessels in 2011.

Not even the current eurozone economic crisis appears to have dampened appetite for new orders with PSV orders rising in the fourth quarter last year to 21 units.

“There is always a risk that newbuild order flow may slow if credit markets continue to tighten over an extended period of time, which could be negative for yards and work in favour of vessel owners,” DVB qualified, however.

One reason for positivity in the OSV market is the plethora of rig newbuilds set to hit the water. A fresh round of newbuilding activity may be launched once all these units are fixed in what is currently a hot market, the bank said.

“There are currently multiple UDW [ultra-deepwater] contracts in the pipeline, primarily at rates of $500,000 to $550,000 per day. These contracts are likely to reduce availability of high-spec UDW rigs in 2012 to a couple of rigs, resulting in an even tighter market. We believe this could result in dayrates moving to $550,000 or higher for those rigs.

“We argue a further tightening of the UDW market would benefit the rig-building sector, in turn kick-starting another round of newbuild programmes by rig owners.”

Semi-tender rig orders are likely to be high on the menu but jack-up orders will not be so stronger, albeit that current jack-up newbuilds will replace older units in the global fleet and there will be continued demand for niche jack-ups, such as harsh-environment units for the North Sea.

DNB singled out Singaporean builders Keppel and Sembcorp as top picks in the rig building market, with large Brazilian orders on the cards. The report came out the same day Sembcorp revealed its Brazilian facility Arazruz won a $792.5 million drillship order from Petrobras.

“We believe the next wave of rig orders will hit when we start to see more contracts secured for the current newbuild fleet, particularly the newbuild orders placed in late 2010/2011.”

By: Eoin O'Cinneide | 06 February 2012 10:20 GMT

Join us at the 2^nd TradeWinds Offshore Marine conference this November in Singapore to analyse, discuss and explore how best to take advantage of these favourable market conditions. Visit our official website to keep updated on event developments or email banu.kannu@nhstevents.com if you are interested to speak and/or be a key sponsor at this important event on the maritime calendar in Singapore.