he marine and offshore industry is in tough terrain. The global oil market crash in October 2014 precipitated a prolonged industry cyclical downturn. Today, the industry continues to grapple with volatile oil prices. Competition and geopolitical uncertainties are heating up. Structural changes in the global energy arena are like shifting sands - we must keep up and keep going.
The financial indicators of 2019 pointed to better days ahead. Keppel Offshore and Marine Ltd (Keppel O&M) returned to profitability and scaled up hiring on increased workload. Sembcorp Marine Ltd (Sembmarine) bolstered its orderbook with notable order wins. Both companies logged in higher amounts of order wins in 2019 compared with the year before.
When we entered 2020, our eyes were fixed on the comeback trail. In the business expectations survey of the manufacturing sector for January to June 2020, Singapore’s Economic Development Board (EDB) noted that in the transport engineering cluster, a net weighted balance of 15 per cent of firms foresee better business prospects in the first half of 2020, compared to the preceding quarter. Within the cluster, the marine and offshore engineering segment continues to anticipate a modest uptick in demand for ship repairing activities and oil and gas-field equipment.
Signs are there, that we are turning the corner. Until a curve ball appears.
Braving the storm: COVID-19
What began as an epidemic affecting some parts of the world at the beginning of the year had escalated quickly to become a global pandemic by March 2020. The COVID-19 situation is evolving, and the effects will take time to unravel. What is clear is the adverse impact on global demand for oil, hence oil prices, affecting the entire oil and gas value chain.
Although the trigger for the current oil collapse is different, the consequences are similar. Low oil prices lead to cutback in exploration and production by large oil companies causing downstream consequences such as cancellation of contracts for offshore projects. Weak oil prices exacerbate challenges to profitability, creditworthiness and employment opportunities.
Divestments and restructuring, an ongoing response since the last crisis, will help mitigate some of the impact, but the sector remains vulnerable. The impact of the COVID-19 global pandemic on the industry - which is made up of SMEs and large firms involved in a diverse range of business interests - will be uneven. Smaller players will be more severely affected as the need for servicing debt burdens, or repaying/refinancing maturing debt against a backdrop of weak cash flows and declining asset values poses significant risks to such firms. Firms relying on imported parts and raw materials are affected by supply disruptions. Certain projects are stalled owing to state-imposed restrictions on the movements of the workforce. Across the industry, the risks of project delays, uncertain revenue streams, and a drought of business opportunities loom large on the horizon.
The government has always been supportive of this industry, the key pillar of Singapore’s economic transformation into a first-world economy. It has introduced measures in the past and is doing the same in this crisis through the swift allocation of financial assistance. While not offering a silver bullet, the assistance provides much needed support - to meet immediate needs and help companies reposition themselves for recovery and future growth.
Bracing up: technology and reskilling
Today, where supply chain disruptions are very real, some companies have found timely solutions to mitigate the risks, and achieve greater efficiency in project management and execution. They are manufacturing some of the parts and components for projects.
Sembmarine and Keppel O&M are using 3D printing to fabricate parts and materials. Both the companies received certifications in 2019, from DNV GL and Lloyd’s Register respectively, endorsing their use of 3D printing technology in fabricating components for their projects. These certifications are critical in the production of high-value components essential for the offshore and marine structures. 3D printing will help speed up production time and project completion.
Encouraged by this success and the many benefits, both companies are preparing for the validation and use of more 3D-printed components in their projects.
The industry is at the cusp of a groundswell of technological change. Industry 4.0, a confluence of technology disruptions such as internet of things (IoT), robotics and artificial intelligence (AI), autonomous and unmanned technology and data analytics is ready to be tapped by those who are ready to take their business further. The experience of the COVID-19 crisis will almost certainly accelerate momentum towards new ways of working, and technology is an enabler.
However, the benefits of technology are realised only when there are competent people controlling and operating systems and machines. To facilitate this, the Professional Conversion Programme for Marine & Offshore Industry (Marine PCP) was launched in October 2017 by Workforce Singapore (WSG) to help mid-career professionals, managers, executives and technicians (PMETs) undergo skills conversion for new job roles in the industry. It also reaches out to industry members seeking to reskill their employees with new competencies in their companies. The Association of Singapore Marine Industries (ASMI) plays a pivotal role as it is WSG’s appointed Programme Manager for the Marine PCP. At the ASMI 51st Anniversary dinner, President Simon Kuik urged members to innovate and transform for sustainable future.
Journeying on: change and continuity
The current weak oil environment is extremely challenging for the marine and offshore industry. However, there are two reasons for optimism. First, oil crisis is not new to us. Although the trigger for the present oil price collapse is different and the situation remains uncertain, the industry has a proven track record of survival through transformation and diversification. The importance of diversifying into adjacent businesses is underscored in a crisis like this; when oil and gas-related projects are down, offshore renewable energy projects mitigate the impact.
Second, while recovery may not be V-shaped, there are signs of an uptick. Governments across the world are doing everything possible to respond to this crisis, to restart national economies, and prevent another disruption. Global demand will return when consumer and investor confidence pick up, buoyed by pro-growth policies that many economies are still pursuing.
Over the years, the industry has trekked a steady path towards transformation. The experience gained and capabilities honed prepare the innovators for both sunny and rainy days - to seize opportunities and overcome vulnerabilities. We must continue on this path, and gather speed in digitalisation and developing a future-ready workforce.
Pushing The Envelope In Ship Repair and Conversion
In recent years, the world has seen a rapid expansion of its fleet of floating production, storage and offloading (FPSO) units. The FPSO industry itself has evolved and has transitioned from single to double hull designs and increased storage capacities, requiring conversion of very large crude carriers (VLCC). Industry players with deep capabilities are capitalising on this growth.
In 2019, Sembcorp Marine Rigs & Floaters Pte Ltd won a contract with Shapoorji Pallonji and Bumi Armada to convert a VLCC into an FPSO for a project in India. Keppel O&M, through its wholly-owned subsidiary Keppel Shipyard Ltd, secured contracts for the modification and upgrading of FPSO. One of the contracts, entered into with Yinson Nepeta Production, involves the fast-track modification and upgrading of FPSO Allan. In the same period, Keppel Shipyard delivered FPSO Abigail-Joseph, its 134th FPSO project and the world’s fastest brownfield FPSO vessel modification and upgrading project, also to Yinson.
FPSOs have proven themselves adaptable and resilient during times of fluctuating market conditions due to its economic and operational advantages. In the aftermath of COVID-19, market dynamics may be more supportive of scaled-down developments, such as smaller FPSO vessels and conversions.
Gaining with gas projects
Driven by rising costs of onshore liquefied natural gas (LNG) terminals, investments in the global floating liquefied natural gas (FLNG) arena is expected to grow. Asia-Pacific, in particular, is poised to draw a majority of investments in the FLNG sector with its sizeable line-up of regasification and liquefaction projects. Profitable opportunities have emerged as the use of floating liquefaction facilities gains traction. At the same time, floating storage and regasification units (FSRUs), acting as game-changers in the opening of new gas markets, have also attracted keen interest from investors.
Companies have been responsive to this uptrend. The success of Hilli Episeyo, the world’s first converted vessel on the list of biggest FLNG tankers developed by Keppel Shipyard, is a visible milestone. In 2019, Keppel also secured a project to convert LNG carrier Gimi into a FLNG vessel.
Floating LNG terminals have also been gaining market share as they have a number of advantages over land terminals. Most of the FSRUs in service are essentially standard LNG carriers fitted with a modular regasification plant. This growth has benefited the major local shipyards. In 2019, Sembmarine added three new gas projects to its portfolio. These included the conversion of the LNG tanker Dwiputra into a FSRU, conversion of LNG carrier Flora into a floating storage unit (FSU) and upgrading works on FSRU BW Magna.
The LNG market started 2020 with depressed prices due to weaker-than-expected demand growth in Asia. The pandemic further weighs on the market. Both the oil and LNG markets are facing oversupply and demand concerns. Weakness in gas demand will reduce the number of LNG-related projects, including FLNG conversion and the development of LNG regasification infrastructure. However, as oil and gas majors retain their focus on reducing the carbon footprint of their business portfolios, gas will play a key role alongside renewables, in helping to meet future lower-carbon energy requirements. Companies offering FLNG and FSRU solutions may see further growth as the offshore gas industry continues to seek new innovations in facility design, operating models and contracting strategies to maintain or improve operating margins.
Bonanza year for retrofitting
The IMO 2020 requirements on the sulphur content of marine fuel and the standards set out by the Ballast Water Management Convention brought good opportunities to shipyards. In the period 2018-19, industry majors received considerable number of orders for ballast water management systems and gas scrubber units, with some to be completed in 2020. This opportunity provided some respite to shipyards fighting the doldrums.