The OSV market has turned from an all-time low to great earnings in the past 2 years, as investments in the North Sea’s Oil and Gas industry are expected to reach an all-time high.
Several key projects are getting authorised in Norway and the UK, with the biggest amongst them being Rosebank, the Cambo oil field, and Clair Phase III (Clair South), the approval of which could set a new all-time high record for offshore investments in 2024. In Norway, the temporary tax regime has emboldened several investments on the Norwegian Continental Shelf, which are set to surpass the total investments made in 2013, with a record-breaking amount of $21bn. In the UK, offshore and gas investments are not on the same level as in the NCS, as it is estimated that in 2023, investments will be around 75% lower compared to the all-time high of $18Bn achieved in 2013. But this is set to change. In 2024, there can be up to 14 new Oil and Gas field projects that, if given the green light, will mark this year as the one with the highest number of projects ever accredited in the UK North Sea.However, there is a slight problem. There are not enough ships.The size of the current fleet is not adequate to serve and support the offshore investments, as the extremely low rates of the past have led to increased scrapping and lay-up levels. On top of that, the current new building activity on the offshore segment has hit rock bottom, going from 33% of the fleet in 2014 to a present 3%, due to the increased N/B prices, lack of financing, shortage in slot availability and considerable construction time.
Not so long ago, the sole available OSV in the Norwegian sea was fixed to perform a spot job at approx. $30,000/day, leaving the region once again sold-out. Moreover, 6 x large-sized PSVs are set to depart and work internationally, adding to the 10 x PSVs that already left the region during the past months, leaving the area with fewer than 170 vessels.
In spite of the fact that the OSV industry has recovered from an arduous decade, there are still great challenges ahead, especially for the shipowners, who are now called to cover the increasing demand for offshore tonnage as the investments in the Oil and Gas industry are soaring.
Chartering
In the crude oil freight market, the second week of September has brought stability in crude freight rates. The BDTI on Friday, September 15th, closed at 740, an increase of 27 points w-o-w. VLCC rates held steady during last week, maintaining their stability in the MEG to China route, just above WS37, marking a YTD low. In the Atlantic, VLCCs had a busy week, characterised by a notable rise in Brazil exports. This surge in exports is enabling owners to regain control, resulting in an upward movement in rates. VLCC utilisation has been trending lower since May, reaching a nearly 3-year low, amidst the voluntary cuts implemented by Saudi Arabia. Consequently, this has led to a global VLCC supply glut, exerting downward pressure on rates, particularly affecting key routes to China. Suezmax rates also showed minimal change, reflecting steady but limited demand across regions and off-market bookings. Owner sentiment improved slightly as more WAF cargoes emerged for early October dates. On the Aframax front, the Med market experienced softness, holding at just below the WS85 mark. Charterers are shifting their focus to October dates due to a shrinking tonnage list, while owners are optimistic about facing less competition, especially given the strong markets in the East. This stability in vessel rates comes amidst ongoing market monitoring and reflects the broader sentiment in the crude oil freight industry.
VLCC T/C earnings averaged -$5,106/day, down – $916/day w-o-w, and closed off the week at the -$5,225/day mark.
Suezmax T/C earnings averaged $11,497/day, up + $443/day w-o-w.On the Aframax front, T/C earnings averaged $8,342/day, up + $1,303/day w-o-w.
It appears that the dry bulk market has moved past the era when average earnings remained below operational expenditure (OPEX) levels.
Currently, there is a consistent uptrend in earnings across all vessel sizes, primarily due to robust grain and mineral trade activity, which has provided essential support for the third quarter, resulting in a positive outcome. Notably, the Capesize segment has continued its strong performance for another week, with the C5TC index rising by 24.2% week-on-week. This increase is largely attributable to increased trade in both iron ore and bauxite, bolstering market sentiment. The Panamax sector has also demonstrated improved figures, driven by heightened activity in the US Gulf (USG) and East Coast South America (ECSA) regions, particularly in the Atlantic, as well as North Pacific (NoPac) grain trade. These factors have allowed shipowners to push the average index close to the $15,000 per day mark. Furthermore, there has been a positive momentum observed in geared vessel sizes across both regions. In the Mediterranean (Med) and Continent regions, limited tonnage has been available in contrast to a healthy influx of cargoes. Additionally, rates have been supported by Indonesian coal shipments in the Pacific region.Cape 5TC averaged $ 11,914/day, up +28.7% w-o-w. The transatlantic earnings increased by $ 2,888/day with transpacific ones rising by $2,391/day, bringing transpacific earnings premium over transatlantic to $2,556/day.
Panamax 5TC averaged $ 14,408/day, up +8.36% w-o-w. The transatlantic earnings increased by $1,405/day while transpacific earnings rose by $1,556/day. As a result, the transatlantic earnings premium to the trans-pacific narrowed down to $412/day.
Supramax 10TC averaged $ 12,739/day, up +11.92% w-o-w, while the Handysize 7TC averaged $ 10,876/day, up +7.57% w-o-w.
The newbuilding market continues to show healthy volumes overall and a wide variety of vessel types. In particular, tankers saw the most orders last week with 5 firm orders. UK-based Union Maritime ordered two Aframaxes from SWS, China, for delivery in 2026. The scrubber equipped vessels are priced at $66.0m each. In the smaller sizes, the Greek owner Meadway Shipping ordered a 42,300 dwt vessel at Oshima, Japan, for delivery during 2026. The only bulker order was an option exercised by Belgium’s CMB for two 210,000 dwt vessels from Qingdao Behai. The price for the pair is not known, while the vessels will be ammonia-fuelled. In the LPG carrier sector, Lepta Shipping added four 40,000 cbm vessels to its order book with Jiangsu Yangzijiang, China. The quartet will be LPG dual-fuelled and all four will be chartered to Exmar. Each ship is priced at $67.0m and is expected to be delivered between 2026 and 2027. Finally, Greek owner Erasmus Shipinvest placed an order for a small gas carrier of 7,500 cbm at Kyokuyo, Japan.
Despite the increased activity in the demolition market, only two of the four main recycling destinations are active. India appears to be the preferred destination for owners as it offers the best scrap prices. Following last week’s G20 summit, the future looks optimistic for the country, while several construction projects have been announced. The euphoria in the construction sector is pushing up steel prices and scrappers are more confident to offer higher prices. The country’s fundamentals are also bullish, with the local currency, the Indian rupee, gradually appreciating against the US dollar. The other active destination, Pakistan, is gaining ground on Bangladesh as it becomes easier to issue letters of credit, making it a preferred destination. In terms of local fundamentals, the currency is strengthening as the government takes action against illegal currency exchange and steel smuggling into the country.
As a result, buyers are reluctant at the moment despite the fact that offering prices remain above the $500/ldt mark. Bangladesh faces a situation where the steel market is illiquid and demand is low. In addition, the local currency is hovering just below a record 110 against the US dollar, so crushers cannot offer prices above $500/ldt and are missing out on tonnage. In Turkey, the fundamentals do not look so good. The country’s HRC exports have fallen by 40% and 53% in volume and value respectively since the beginning of the year, while the Turkish lira is trading at around 27 against the US dollar. This subdued steel market is effectively keeping Turkey out of the market, with no ability to capture the available tonnage.
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