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Offshore Support Journal

New cycle or long cycle purgatory? Contrasting views on market recovery at Asian OSJ Conference

Wed 26 Sep 2018 by Edwin Lampert reporting from Singapore

New cycle or long cycle purgatory? Contrasting views on market recovery at Asian OSJ Conference
Right sizing will set the industry on the right path, said Westwood Global Energy Group's Thom Payne (centre). Rystad Energy’s Jon Fredrik Müller said new investment and improved margins were in evidence

Two of the OSV sector’s leading analysts offered contrasting assessments on market prospects at today’s Asian Offshore Support Journal Conference in Singapore.

“We think we are at the start of a new cycle of offshore investments,” Rystad Energy’s head of energy for the Asia-Pacific region Jon Fredrik Müller told the gathering, adding some companies were already seeing this investment and parts of the supply chain were already seeing improved margins.

He said global exploration and production investment is expected to grow 5% per year between 2018–2023. Rates for the OSV sector will improve significantly over the next five years versus the last five years if the assumptions he presented around the number of rigs that will actually deliver and return from stacking prove correct.

For Westwood Global Energy Group’s Thom Payne, the OSV sector is stuck in “long cycle purgatory”.

“Despite higher oil prices, near-term recovery is still dependent upon supply-side right sizing,” Mr Payne told delegates adding that the recent oil price rally has yet to be felt in the offshore marine segment.

Global OSV utilisation was still struggling at 42% and pricing was arguably weaker today than 12 months ago, he said. He acknowledged that recent restructuring has accelerated rationalisation but had not gone far enough. “The global fleet has lost 38% of its value since 2013 – a further 20 % reduction may be required. We believe balance sheets are still inflated across the industry.”

Determined to conclude on a bullish rather than bearish note, Mr Payne said there was potential for an undersupplied market in 2020 if oil companies held fast to their age requirements for vessels. An ageing fleet and a lack of newbuilding orders could create renewed demand with younger vessels attracting a premium. 

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