There are about 88,000 commercial vessels in the world and the 3,510 offshore vessels form less than 4% of this total. But due to the highly specialised roles of offshore vessels they generally represent a higher investment than many other vessel types. Over the past five years (measured by year of delivery) annual expenditure on offshore vessels has grown from about $500 million to nearly $1.4 billion and a major part of this has been spent in Europe, in particular Norway. In this paper we examine some of the factors that have impacted on the market in recent years and consider how they may develop in the future.
At 1 July 2000, the offshore vessel fleet totaled 3,510 boats with some 72 on order. Looking back over the years, there have been three distinct peaks in delivery numbers; 1975, 1982 and 1998. The 1975 peak follows first major oil price rise and the beginnings of North Sea oil production. The 1982 peak is associated with the large surge in offshore activity following the 1979 oil price rise. The 1998 peak, although it follows two years of rising oil prices, is probably also associated with the considerable growth in deepwater and subsea activity during that period.
It can be seen that the market reacts, or perhaps over-reacts, to change (in this case in oil prices) and the more rapid the change, the more dramatic the rise in vessel orders. This is not something that is specific to the offshore vessel deliveries as the effects can be seen in other shipping markets.
In the case of the general shipbuilding market, the macro factor that has greatest impact is changes in global economy – changes in GDP impact directly on the amount of world trade which determine the tonnage carried by sea and so the orders for new ships. But of course, the offshore industry is also subject to global economic factors, which impact strongly on oil demand, oil prices and offshore vessel orders. In reality, there is a fine balance between supply and oversupply with the result that very small changes can have a massive impact on markets. This was very clearly demonstrated recently when problems in the S E Asian economy resulted in the oil price fall.
The next five years will probably see firm oil & gas prices. As activity moves into deeper waters and the existing fleet ages, there is likely to be an increased requirement for new offshore vessels. The competition to build them will intensify and the concentration of European yards on special vessels will be even greater. Globilisation offers great opportunities for European companies, but great threats for European jobs. In an increasingly global marketplace cost effective designs carrying recognised brand names will be a key to continuing success.
by John Westwood, Douglas-Westwood Associates