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An Indian summer for the OSV sector?

Tue 12 Jun 2018 by Selwyn Parker

An Indian summer for the OSV sector?
McDerrmott and its partners had a brief weather window to install the subsea infrastructure - photo courtesy of McDermott

The Indian OSV sector has shrugged off the economic woes that have hampered its counterparts elsewhere and is enjoying a period of substantial growth, writes Selwyn Parker

Conventional wisdom in the oil and gas industry says that offshore exploration around the world is making a slow and gradual recovery, as crude prices pick themselves up off the floor. But nobody has told those operators in India, where a flurry of offshore activity is leading to healthy, long-term contracts for the support vessel industry.

As a case in point, in late April BP and India’s Reliance Industries approved development of the vast Satellite cluster of deepwater gas fields on the east coast. Combined, the field will deliver a total of about 3Trn ft3 of gas. That is a US$6Bn investment, big by any standards.

As Reliance chairman and managing director Mukesh Ambani said in a comment that reflects the general level of activity in Indian waters: “[The development] supports the country’s imminent need of increasing domestic gas supply and is a firm step towards making India a gas-based economy.”

And because the Satellite is a deepwater field lying at 1,700 m, it requires more support vessels than shallow fields.

Make in India

The increase in offshore activity has been triggered by prime minister Narendra Modi’s grand plan for the manufacturing industry. Known as Make in India, it will require all the oil and gas that the offshore industry can find. The government has set an ambitious target for domestic manufacturers: by 2022 they have been told to contribute 22% of gross domestic product, compared with 15% at the time of writing.

Clearly, this ambition will necessitate a huge increase in energy sources, which should keep the offshore supply industry busy for years to come. As president and chief executive of GE’s oil and gas business Lorenzo Simonelli predicted in a paper last year: “India is expected to be one of the largest contributors to non-OECD petroleum consumption growth globally.” Mr. Simonelli expects total fuel consumption to expand by 9 to 10% over the medium term.

Based on India’s ambitions in manufacturing, Platts Analytics broadly agrees. Citing several factors including the drive for clean fuel (India is aiming for Euro VI standards by early 2020), mounting demand for air travel and ground transport, and the “insatiable growth for petrochemicals”, Platts sees a long-running demand for gasoline, jet fuel, LPG and naphtha.

Based on 2017 statistics that saw India consume more oil than China, that prediction looks increasingly accurate. For now, India’s insatiable demand is leading to an increase in energy imports, but the prime minister wants more oil and gas to come from Indian waters, which is clearly good for the offshore support industry.

The domestic shipbuilding industry has also been called into action to boost the offshore support fleet as it engages on what the domestic oil and gas industry sees as a national mission. Long dogged by low productivity, underinvestment and inadequate capacity, the mainly government-owned shipbuilding industry has historically lost out heavily to Japan, China, Singapore and other Asian nations. According to the Economic Times of India, Indian shipyards claim less than 1% of the action in the global shipbuilding industry, far behind competing shipbuilding nations.

Aware of the problem, the government has taken a series of measures to boost productivity in the nation’s shipyards, for example, providing long-term project-based loans at favourable rates of interest. According to the Ministry of Shipping, the shipyards can claim financial assistance equal to 20% of the lower of the contract price or “fair price” for the project. Although that rate reduces by 3% every three years, the arrangement helps the shipyards fund heavyweight and smaller-scale construction projects, such as OSVs.

A handful of shipyards have historically accounted for around 95% of the delivery of ships, as measured by value. Today the biggest yards are: Bharati Shipyard, a privately-owned yard which specialises in offshore support vessels; Chowgule & Co, another privately-owned facility that can build vessels up to 110 m in length;  the government-owned Cochin; Hindustan, a diverse facility able to build most types of offshore ships from drill ships and dredgers to floating cranes and tugs; Mumbai-based Pipavav, another specialist in OSV that has now merged with the giant Reliance group;  and the long-established L&T yard headquartered in Chennai.

Of these, Cochin is the largest - capable of building ships up to 110,000 dwt, more than enough to satisfy the needs of offshore exploration – and L&T Shipbuilding one of the busiest. A division of Larsen & Toubro, with yards on the west coast near the city of Surat and on the east coast near Chennai, the yard has constructed a wide variety of offshore utility ships, such as platform supply and OSVs, anchor-handling tugs, multi-purpose supply vessels and dredgers, one of the workhorses of shallow-water exploration.

Currently, L&T has four OSVs under construction: two hybrid-propelled anchor-handling, towing and supply ships, an advanced diesel-electric supply vessel of 3,350 dwt, and a 30 m patrol vessel capable of 45 knots. Encouraged by the increase in offshore activity, L&T has established a technical collaboration with Mitsubishi Heavy Industries for the design and construction of a range of similarly specialised ships.

Recession-proof

Surprisingly, most of India’s shipbuilders escaped the recession in the industry relatively unscathed, mainly because the oil and gas industry managed to side-step the economic turmoil. Although some foreign orders were cancelled, in general Indian shipyards did not see the wholesale cancellations of contracts experienced elsewhere, such as in the North Sea.

As crude prices climb higher and offshore activity moves back into gear, the medium-term prospects for India’s shipbuilding industry look good. According to predictions by the International Journal of Innovative Research and Development, the industry should post US$22.1Bn in revenues by 2020, a compound annual growth rate of 30%. If that happens, India’s share of the global order book could rise as high as 14.6%.

Such predictions depend significantly on what happens offshore. Encouragingly, other big projects rivalling the Satellite field are getting underway, as India aims to double gas consumption by 2022. One of these, also on the east coast, is on the Vashishta field, where Indian multinational Oil and Natural Gas Corporation (ONGC) has just achieved first gas. This is a development that should keep a fleet of offshore vessels busy for the next eight years.

One of the big beneficiaries in Vashishta is veteran offshore operator McDermott International, a specialist in floating production and offloading platforms (FPSOs), and its Indian consortium partner Larsen & Toubro. Between them, they have booked a broad portfolio of subsea work involving engineering, supply and technical installation.

As in other offshore fields, the project threw up many challenges, notably for the installation vessels that lay pipes and other underwater infrastructure. The small weather window enforced by the monsoon season was one such difficulty that had to be overcome. The contractors had just four months to put in place all the subsea infrastructure, including 50 km of pipelines, before the monsoon season hit, bringing not only hostile surface weather but also strong undercurrents, that would have made subsea work near impossible.

As McDermott’s project director at Vashishta Ben Delves said in a release in April: “Engineering design for the project was no easy feat” noting some of the challenges, including difficult underwater soil conditions and the heaviness of the subsea infrastructure that had to be installed, some of it weighing up to 200 tonnes.

To get the job done, McDermott and its partner had to call into service three of their most specialised vessels: an 18,519 tonne cargo barge the Derrick Barge 30, Lay Vessel North Ocean 105 designed for advanced deep-water offshore operations, and the multi-purpose North Ocean 102.

Elsewhere, India’s offshore exploration boom has also benefited GAC India, whose parent group is based in Dubai. The Indian division boasts 26 offices covering the main oil and gas hubs along the entire coastline. GAC India marketing and administration manager of oil and gas support services Vinod Maliyekal said: “The main offshore fields in India are located in the Bay of Bengal off the coasts of Kakinada on the east coast, where there is a deepwater port, and in the Arabian Sea off Mumbai on the west coast.”  

An essential player in India’s offshore supply chain, among other tasks, GAC India transports construction materials, handles the import and re-export of marine equipment such as rigs, platforms and drilling tools, as well as arranging the delivery of supplies and provisions. In a sign of promising times for the industry, earlier this year the group moved its deepwater drill ship, Platinum Explorer, to India in a major logistical operation.

About 60% of OSVs active in the area are under Indian tonnage. A versatile fleet, it supports activities ranging from drilling, platform support, construction and installation, and catering and supply requirements. But the domestic fleet is not big enough to do the entire job and the remaining 40% is chartered from foreign owners based primarily in Singapore and the UAE. “These are mainly DP2s [dynamic positioning vessels with two levels of redundancy], DP3s [three levels of redundancy], anchor-handling tugs as well as accommodation barges, work barges, survey and diving support vessels, pipelay vessels and drill ships,” said Mr. Maliyekal.

America’s offshore supply specialist, Seacor Marine, is also busy in the area. With a global fleet of 191 support vessels at last count, Seacor Marine has signed up for the long haul by forming a joint venture with India’s Dynamic group. Named Dynasea Offshore Services, the joint venture promises to be busy for years to come. The Dynamic group operates six offshore rigs under long-term charters to ONGC, the state-owned oil major.

The most active area for the support industry is the Mumbai High field. Located in the Arabian Sea about 160 km west of the Mumbai coast, it boasts the highest concentration of offshore exploration anywhere along the Indian coastline. One reason for Mumbai High’s attractiveness is that it lies in just 75 m of water and ONGC is an important operator there.

But that could all change as experts now predict considerable action in the Krishna Godavari basin off Kakinada on the east coast. Spread over more than 50,000 km2 including the Bay of Bengal, it is an onshore and offshore field where several oil and gas giants have made heavyweight, long-term investments that will keep the offshore support industry occupied for many years to come.

 

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