Offshore Pipelay - Issue 45
11 Aug 2020 - Upstream Costs and Technology | Scheduled Update
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Mark RaeMark RaeAssociate Director

Executive summary

Key insights

  • Global pipeline installations in 2020 and 2021 are forecast to be at the lowest annual level recorded since 1989.
  • Utilization of the harsh and deep offshore pipelay fleet is forecast to remain below 70% through to 2022, before rising to 77% in 2023 as demand increases sharply.
  • But utilization of the shallow and benign fleet will be critically low over the next five years, with our forecast indicating global utilization of 16% in 2020 and 11% in 2021.
  • No pipelay vessels have been retired so far in 2020, but Rever Offshore has canceled its newbuild vessel Sovereign.

Key demand trends

Installation activity has been affected by the oil price downturn, with operators postponing or canceling many projects worldwide.

The COVID-19 pandemic has also had an effect on offshore activity, with many countries enforcing lockdowns and a freeze on nonessential work.

Our forecast is for total installations in 2020 to be 45% lower than in 2019, which in turn had 19% less pipe installed than 2018.

A further 1% drop is forecast in 2021 as a result of the prolonged effects of the oil price downturn and pandemic.

Assuming an increased and stable oil price from 2021 onward, and that COVID-19 restrictions are eased, we forecast a 43% increase in installation in 2022, and a further 66% rise in 2023.

Key supply trends

The offshore pipelay fleet currently consists of 162 vessels worldwide; 102 of them aimed at work in shallow and benign waters, and 60 at harsh and deepwater regions.

No new vessels have been ordered since 2017, and the recent trend has been toward retiring vessels in an effort to rebalance the fleet.

Supply chain implications

Harsh and deep fleet utilization is forecast to remain below 70% through to 2022, before increasing to 77% in 2023 as a result of deferred projects reaching the installation phase, and construction beginning on large Australian projects.

We forecast that the market for shallow and benign vessels will remain very weak from the suppliers’ perspective, with utilization forecast to fall to 16% in 2020 and to 11% in 2021.

Contract and cost trends

Deepwater vessel managers, having already endured six years of falling average day rates, can expect a further fall in 2020 as demand weakens in the face of the low oil price and COVID-19 challenges. While the forecast increase in average day rates of 24% in 2022 looks, on the face of things, high, it should be remembered that rates are currently very low, and that increase would still keep them well below even the modest rates of 2014.

Shallow and benign day rates are forecast to remain erratic through to 2024, rising and falling in tune with vessels demand and supply. If the oil price remains low and operators continue to defer or to cancel offshore projects, we can expect day rates to plummet toward the end of our forecast period.

Related links

Industry macro trends

Glossary and financial terminology

Regional definitions

Market segment definitions

Cost model methodology

Market segment cost models—Q2 2020

Attachments
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