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Tight months (and years) ahead in the C/SOV space

17/02/22

Since 2014 we have all read the stories about construction vessels seeking utilisation in offshore wind in countless articles and posts. The oversupply of vessels in the oil and gas sector in that period made various shipowners look to gain their first experiences in the offshore wind, with many of them subsequently generating a significant amount of their turnover from renewables.

Shipbrokers and analysts, including ourselves, for years, warned about what would eventually happen once the oil and gas market recovered and offshore wind continued to grow. In 2019 and 2020, we saw the first signs of the intersection of the two markets affecting rates.

While Covid in early 2020 brought a slow rate of recovery to a temporary halt, we saw increased activity in the 2021 C/SOV season in the North Sea. At this time last year, many professionals engaged in chartering questioned whether there would be enough vessels to cover the seasonal demand for windfarm construction, O&M and unplanned maintenance campaigns.

While the fear of too little supply did not drastically materialise in the 2021 season, the industry is heading into a year where these fears are more justified than ever.

Those involved in chartering in offshore wind at the time may feel reminded of the years between 2010 and 2014/15 when it was basically impossible to get your hands on any decent DP tonnage at affordable prices, if your works were not oil and gas related. This was also in part due to the fact that there were simply no purpose-built C/SOV options in the market at the time. With offshore wind continuing its steep growth and internationalization we see interest from vessel owners continuing to be high to provide specialized vessels to the renewables market. However, 2022 may give us a glimpse of how the coming years will look in offshore wind if the oil and gas market remains stable and or continues to recover further.

Many of the vessels that have served the offshore wind market as W2W and accommodation vessels in recent years have had their 250 t AHC crane sitting idle and bored on the back deck. However, many of these vessels now have commitments throughout a major part of 2022 at day rates that have nearly doubled from what they once were.

This also comes with a lower risk profile as they do not have to rent and pay for a third party gangway to perform the works required. It is hard to blame them for “lack of commitment” to offshore wind after working several years at partly loss making day rates. On top of that most of the purpose-built C/SOVs are also committed and many newbuilds are still in the yard and will not hit the North Sea before 2023/24.

Until mid/end January 2022 this seemed like it could lead to a balanced supply/demand situation in the summer due to very few outstanding C/SOV requirements. However, that has recently changed with a massive influx of requirements in the past weeks for shorter and medium-term work. To add to the dilemma, they are clustering mostly around commencement dates between April and May.

With many vessels already being secured, the remaining available assets will often come with many compromises i.e. reduced working limits, little W2W experience or day rates that were last seen in 2015. The tide has definitely turned and this year will show if charterers in offshore wind will be agile enough to adapt to this new market situation. After many years of getting agreements with unbalanced contract terms on very capable vessels built for the oil and gas market and plenty of vessels to choose from, charterers will now have to actively sell themselves to owners by making opportunities attractive. That could be in the form of improved contract terms, more efficient tender processes, more flexibility or, most importantly, higher budgets.

We are seeing the first tendencies of charterers trying to bundle work scopes across projects to offer longer durations or even checking the market for (semi-) speculative long-term charters to secure assets for their projects to come.

All that said, there is one potential bottleneck that is often forgotten as it has not been an issue in recent years! Motion-compensated gangways for rent. When pretty much all vessels with permanently installed gangways are committed, rental units on DP vessels with sufficient cabins and deck space used to be the way to go. However, for the next four to seven months we see gangway availability as one of the biggest risks (next to the vessel shortage) in order to cope with the C/SOV demand for the season.

In summary, the above-described market landscape shows for the first time that the supply-demand gap for C/SOV, as predicted by Clarksons and others, is starting to become more than a threat for the future – it is right around the corner, at least for the months between March and October for the seasons to come.