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Originally written for Seatrade Offshore Marine and Workboats Middle East
After five years of volatility in the energy sector, the underlying activity in the offshore marine industry across the Gulf region is robust and is also gradually strengthening in markets globally. With the increasing global demand for energy, both hydrocarbons and offshore renewables will play an important part of the energy mix for decades to come.
Very high oil prices are unlikely to return, but the current outlook presents a positive backdrop for any company willing to reinvent its business model to drive down the cost of offshore logistics operations for its customers. However, those companies need to have an agile mindset, with a willingness to adapt to unfamiliar market conditions and embrace “challenge” as an “opportunity”.
Such challenges are, and will continue to be, quite sizeable. The market continues to suffer from an oversupply of assets, and rates remain unprofitable in most cases. Oil companies have also instilled a fierce fiscal discipline and are working hard to maintain the savings they achieved in their supply chains over the last five years of retrenchment. There are factors working against market progress, which without an openness to change, will continue to negatively impact its economic growth.
In an industry where margins are highly compressed and quite often even negative, companies need to be willing to explore opportunities for greater collaboration and joint ventures - much more than they previously have. The leaders will be those companies that have learned to work with others to achieve efficiencies otherwise unrealisable. As standardisation across markets grow, global and regional scale will become increasingly important. Collaborating with competitors – for example in vessel pools – may allow for the ability to quickly establish scale positions in key markets of growth - and doing so with minimum upfront investments and a slim overhead per operating unit.
This is only one example of where collaboration can be effective. Various technological platforms have emerged, ones that facilitate collaboration, but fundamentally, collaboration requires a shift in mindset and willingness to try a new way of working.
As the energy market picks up, we’re observing an increase in E&P spending – including in the Middle East. The cost of offshore E&P development projects today is almost half of what it was at its peak, and E&P companies can therefore make money at much lower oil prices. That is an environment that should naturally witness increased investment after years of underinvestment. The offshore industry is driven by such E&P spending, so increased investments should over time lead to higher activity and strengthened utilisation rates of rigs, vessels and other equipment. However, there are other pockets that should be benefiting too – including technology.
At Topaz, we acknowledge that having access to real-time data, gives us better decision-making power. Therefore, ultimately the biggest opportunity is having the tools and information needed, at our disposal, to improve operational efficiency, safety and to save costs. This spans from vessel technology advancements to real-time data analysis including technologies that will enable condition-based maintenance, more efficient vessel routing, greater fuel efficiency and enhanced safety.
We are an early adopter of technology and we work with our customers throughout the value chain to create bespoke solutions and services in the logistics and performance areas. Customer demands are increasingly shifting towards advanced services and in response, we’ve begun to digitise aspects of our service offering. This will only accelerate at Topaz going forward.
As we work with our customers to design broader logistics service offerings, we must be willing to take risks and develop the capabilities to deliver more complex services. One aspect of this could entail moving away from chartering out vessels on a day rate and taking a higher degree of control over routing and cargo. We are achieving this by evolving into a solutions-driven business that adds value through distinct, tailored services allowing us to take on a bigger part of the customers’ value chains.
We’re still faced with numerous challenges (for example the current vessel oversupply), but we should look at this with the bigger picture in mind.
The implications of an aging fleet have been a consistent challenge for the market. However, supply and demand of ships is better now than a few years back, owing largely to significant lay-ups and some scrapping of the ageing fleet.
Currently, 30% of the global fleet is laid up, of which more than half are over 30 years old. Major cost and safety implications of reactivating these vessels, especially the older ones, are leading to the bulk of laid-up tonnage not returning to service. Compounded by steadily increasing demand, this gradual attrition in supply will lead to a more balanced market in years to come.
While ageing assets is a reality in our industry, rather than a risk, it’s an opportunity for recovery, at least for those of us with a modern fleet and capacity to make new investments.
We are looking to the future with confidence.