Large platform supply vessels: Filling demand or building a bubble?

Recent focus and finance in the offshore oil platform supply vessel market has been on constructing large platform supply vessels. The problem is the number of ships being built far outstrips demand.

The offshore supply vessel market has undergone dramatic growth in recent years, particularly in the anchor-handling tug supply segment, with more than 700 new vessels joining the fleet since the start of 2008. But in the past couple years, focus and finance have swung toward the construction of platform supply vessels (PSVs) and especially the largest class, those with a deadweight of more than 4,000 metric tons (dwt).

Exploration in harsh and deepwater environments, including the Arctic, which takes place farther from shore and carries the increased need for conveyance of hazardous and noxious materials, supports the business case for building these large, high-technology vessels. Large under-deck tanking and increased deck area allow greater volumes of freight to be carried in a single trip, with dynamic positioning as standard and hybrid and diesel-electric power and drivetrains increasingly common. These new large PSVs are capable of transporting more and spending less time at the delivery location, with reduced fuel usage and lower emissions.

However, the number of these vessels being built and ordered far outstrips current demand forecasts. In early 2008, the fleet of PSVs of 4,000 dwt numbered just 126 vessels; by early 2014 it stood at 359 vessels. Shipyard orderbooks show a further 200 vessels scheduled to join the marketplace before the end of 2016, with 75 orders placed in the past year alone (see figure below).

China and the United States are the two leading countries building these vessels. The build boom in the US is driven by Jones Act compliance and the need to replace older, smaller US-flagged tonnage that is unsuitable for deepwater work. Chinese growth, meanwhile, is driven by financing deals structured with a low initial deposit and full payment only on delivery, which may be encouraging speculation on the part of ship owners.

For ship owners, purchasing vessels in an oversupplied, but comparatively inexpensive, market makes long-term business sense-assuming sufficient capital costs are avoided up front and an eventual improvement in the supply/demand situation for vessels' services. In the short term, however, such a glut can curb day rates and profits.

And while long-term market trends support the need for high-capability supply vessels, current IHS demand projections indicate a looming surplus. The forecast for large PSVs shows a need for 75 additional vessels by the end of 2017, far fewer than the current supply scenario of more than 200 vessels.

So far, there has been strong uptake of large PSVs in the North Sea, and if owners are to avoid increased financial difficulties, they need this to be replicated in other growth regions around the world. However, that poses a conundrum as to what happens to the smaller, older tonnage in a maritime segment that has been reluctant to scrap vessels.

David Hunter Senior Analyst, IHS Energy