Platform Supply Vessels, or PSV’s, specialize in the logistical support of the offshore oil field. Working betweenan onshore supply base and offshore work locations PSV’s transport essential consumables in tanks under deck (for instance drilling fluids, cement, fuel& water) and other supplies (such casing, spare parts, food &provision) on its deck.
PSV’s can be summarized into 3 broad categories; small,medium or large, calculated based upon deadweight (i.e. their cargo carrying capacity) or cleardeck area (i.e. the space available to place cargo on deck). Below depicts the sizes in both cases:
Supply & Demand Dynamics
The demand for PSV's, and offshore service vessels (OSV's) in general continues to be driven by the world's increased energy demands. Although over the long-term global energy consumption will see a significant shift away from oil and gas, oil and gas remain a major source of consumption representing more than 50% of market share. Gas growth is expected at 1.9% p.a. and oil 0.8% p.a. through to 2035. Furthermore, it is anticipated that a greater reliance on offshore resources will be seen as onshore production declines and technologies open the door to more difficult offshore resources.
The PSV market is highly cyclical. Utilisation and rates are quick to react to oil price due to the influence oil price plays on E&P spending patterns (see Rig Count). As of end-2017 with oil prices stabilised around US$60 per barrel the short to mid term is likely to remain challenging for vessel owners as new investment levels remain low and offshore rigs continue to be stacked. Without a sustained period of stability at higher oil prices increased activity is unlikely.
PSV demand remains dampened by the oil price volatility which has seen prices move to 12-year lows of US$26/barrel settling around US$50/barrel more recently. The current prices have left many oil and gas projects uneconomical and it is expected that E&P spending will decline a further 20% in 2017 from 2016. Without robust oil price increases, demand is expected to be subdued, the exception being the Middle East where small increases are expected in small to mid-size PSV tonnage due to the favourable oil economics.
On the supply side vessel, owners continue to suffer from the huge supply glut following multiple years of aggressive new-build programs. OSV’s outnumber rigs 8:1 as of early 2017 (160% increase from 2008), utilisation has dropped in some areas 40% and rates have sunk as much as 60% since the oil downturn. If demand begins to pick up newer vessels will most likely be the first to see service during recovery.
Circa 24% of the global existing fleet is 20+years in age and not expected to work again. Unfortunately, these numbers are offset by a continued new-build program estimated at 8-12% of existing OSV’s. Based on these economics vessel owners remain locked into challenging times for the foreseeable future.
Regional Heat Map
With the exception of the Middle East, most regional markets have suffered the same fate during the oil downturn. See below for a snapshot of the latest trends in each region:
The OSV market is highly fragmented. With a global fleet of circa 3,500 vessels the top 11 owners represent just less than 32% of the market. The remainder of the market is taken up by some 400-500 vessel owners with an average fleet size of 4-5 vessels. The below chart depicts the vessel split between the main PSV & OSV suppliers.
A five forces analysis reveals the competitive forces acting on the market. From here we are able to determine where power sits in the marketplace. In the present market environment power sits firmly with the buyer.
Cost & Price Analysis
Due to the low oil price and the competitive nature of the market PSV owners are operating at close to breakeven with most owner's recording loses since the downturn. The breakeven point of a mid to large size PSV is US$8,000 to US$10,000 per day depending on region. This is broken down as follows
Current day rate trends are as follows:
|Description||Small to Mid||Mid to Large|
|Low Daily Hire Rate (US$)||6,000||8,000|
|High Daily Hire Rate (US$)||12,000||21,000|
|Target Daily Hire Rate (US$)||6,000 to 8,000||8,000 to 14,000|
Total Cost of Ownership
|Parameter||Service Cost||Fuel Cost||Performance Cost|
|Description||The rates and charges agreed in a contract for the performance of the service||The cost of fuel used by the vessel in performance of duties||The cost of inefficiency in performing duties|
In the current market environment buyers are in a dominant position. The huge oversupply of Platform Supply Vessels, the regional mobility and low demand place power firmly in the buyers hands. Buyer’s should look to take advantage of this position securing cost reduction and higher specification vessels (fuel economy & safety). Where possible Buyer's should look to aggregate spend to further improve leverage. In summary the strategic objectives should be focused around:
When approaching the market DALEEL recommend the approach outlined below:
In preparation for any tender or negotiation Buyer's should ensure they have:
- The latest market intelligence in the region including utilisation and indicative rates
- The latest supplier intelligence including vessel availability, utilisation and rates
- Information on other regions vessel availability and rates. Given PSV's are highly mobile Buyer's should look globally and try to take advantage of lower demand in other regions.
Typical oil field PSV operations are managed via a Time Charter. Below is a summary of the avialble contacting methods, where responsibilities lie for each and how payment is calculated.
|Description||Per day or duration of time||Per trip/voyage||Vessel hull & machinery only|
|Operational Preference||Preferred||Not preferred||Not preferred|
|Vessel Owner Responsibility||Vessel|
|Charterer Responsibility||Port Charges|
Cargo Loading & Discharge
|Cargo Loading & Discharge||Crewing|
Cargo Loading & Discharge
|Calculation of Charges||Daily hire rate||Lump sum per voyage or based on cargo volumes||Monthly lump sum payment|
|Standard Form Contracts (BIMCO)||SUPPLYTIME||GENCON||BARECON|
Dynamic Positioning Explained
A DP system automatically triangulates between GPS satellites and/or other positioning systems to maintain the vessels position within a 1m to 3m radius allowing the vessels to be maneuvered very close to platforms and rigs. Check out the video below of a supply vessel operating in heavy weather in close proximity to a jack-up rig:
When engaged the DP system simultaneously and continuously controls bow thrusters and main propulsions to hold position irrespective of current, wind or wave action. This allows for greater accuracy and safety when manoeuvring removing a large portion of human error risk. DP Systems have 3 classes each representing a greater level of redundancy in the system.
Diesel Electric Propulsion Explained
Diesel Electric Propulsion differs from traditional propulsion systems in that multiple diesel engines each drive an electrical generator producing electrical power that energizes a motor connected to the propellers. This provides efficiency (fuel & emissions) benefits as when loads are low not all diesel engines will be turned on. In addition, even where one engine fails power can still be transmitted to both shaft lines.
Whilst awarding a contract to the right supplier is important measuring, analysing and managing performance ensures the expectation set at the outset are achieved. Below is a snapshot of where both suppliers and buyers need to focus to ensure success as well as some indicators that help identify if you are on the right path.