• Sea changes

    A latent bonanza awaits in the shipping industry when the oil price rises and West African production becomes profitable once again.

    Sea changes

    Harbours throughout Southern Africa benefited from calls by numerous vessels associated with the offshore oil industry. Cape Town, for example, once had three rigs undergoing refits simultaneously, bringing millions of rands into the country. Importantly, for a country where unemployment figures are alarmingly high, each of those refits provided work for hundreds of people, ranging from specialised engineers and highly skilled artisans to scores of unskilled workers, such as cleaners and painters.

    The levels of exploration in the oil industry – and especially the West African oil and gas industry – are clear. In West Africa, the number of jack-up rigs and semi-submersible rigs has remained constant at about 66 units.

    However, since few new oil-related projects are in the offing in that region at present, industry sources report that utilisation of rigs is low – about 6.3%, compared to 31% last year. Drillship utilisation is now at around 46%, dropping from 71% last year. The figures for jack-up rigs show a similar decline in utilisation at 31% now, compared to 44% a year ago. Forecasts show that these figures are likely to decline over the next year, unless a significant oil price rise occurs. (Recent disputes between Qatar and other Arabian Gulf states may induce such a price increase.)

    Production figures also reflect the current state of the oil industry. In 2011, Nigeria produced more than 2.5 million barrels per day, the vast majority coming from offshore installations. Since then, the global oil price drop has continued to have a major effect, but local factors have also restricted the efficiency and profitability of Nigerian oil and gas fields.

    Political instability, the effects of the Boko Haram terrorist activities, specific vandalism against oil installations, and the ever-present threat of piracy against Nigerian offshore production sites and ships serving the oil platforms have contributed significantly to the catastrophic decrease in production to around 1.5 million barrels per day in 2016.

    Such a production decrease (1 million barrels per day over five years) led to an inevitable drop in profits for the oil majors, translating to less money being available for exploration and production in marginal fields, as well as a significant reduction in expensive offshore operations. This was particularly true in operations off Angola where increasingly, work had moved into deeper waters, necessitating the deployment of more sophisticated drilling rigs and drillships to work in depths of 4 000m or more. Such vessels are expensive to charter.

    Because of the expense involved in working in such water depths, much of that work has been reduced in extent or suspended, leading to fewer vessels being required to service the offshore oil and gasfields. In a Korean shipbuilding yard thousands of kilometres away, new drillships – including at least one that should have gone to Angolan owners – that had been ordered during the halcyon days of high oil prices have not been delivered to their owners.

    Once earning charter rates of around US$100 000 per day in the North Sea, offshore service vessels are also laid up across the world, including Walvis Bay where, at the time of writing, 14 ships were at anchor awaiting charters, some for more than a year. Serving the offshore sector as well as the local fishing industry, the floating docks at Walvis Bay are also not as busy as they were during the heyday of the oil industry, with negative consequences for the docks’ operators, although a recent contract has given a fillip to the repair industry in the desert port.

    In the port of Ngqura on South Africa’s east coast, the drillship Titanium Explorer has been laid up for more than 12 months and will be there at least until the end of this year – possibly even into 2018.

    Although the drillship Noble Globetrotter II has secured a small drilling contract from the end of June, its protracted lay-up in Cape Town from March this year illustrated two aspects of the malaise in the industry. It was laid up at a berth that had been dedicated to refitting rigs and other major offshore vessels. Such has been the decline in that sector that the repair facility has been closed, and the berth was occupied for months by the idle, sophisticated drill ship.

    A large Cape Town-based marine engineering company reports that the offshore oil and gas sector provided repair, maintenance and upgrade projects that, between 2007 to 2015, averaged more than 1 million man-hours per annum. The last year in which that once-highly active company had worked on a major oil-related vessel was 2015. In 2016 and the first quarter of 2017, no man-hours were recorded. ‘We are tendering on projects,’ the company added. ‘However, these will only materialise should the oil price increase and remain constant. We do not foresee any major projects for another two years.’

    Associated with the reduction in the number of offshore vessels has been a reduction in the training of seafarers in littoral African states, a situation that has impacted training institutions, notably in South Africa where over the years, hundreds of Angolans and Nigerians have completed maritime training courses. Fewer now attend the courses in South Africa.

    Along the southern coast of the country, gas from the so-called FA field has been piped to shore for decades. Recent indications suggest that the output from the gasfield has declined, although the figures for cargo handled at the single-point mooring buoy show a constant volume over the last decade. (2011: 1.75 million m3; 2016: 1.78 million m3).

    It should be pointed out that cargo volumes through the buoy are skewed at present, as diesel fuel is being imported and then re-exported to Port Elizabeth and East London. In addition, crude oil and condensates are imported to supplement the lower gas volumes so that the refinery at Mossel Bay can continue to produce its usual range of products.

    Signifying the closure of oil production off South Africa’s southern coast was the withdrawal of the production rig Orca from the nearby Oryx and Oribi oilfields in 2013. During its time on the field, the rig produced more than 46 million barrels of oil. With the closure of these oilfields, service vessels were also withdrawn, with the negative effects on the port of Mossel Bay, which had been the service centre for the offshore oilfield.

    Even in this time of depressed oil prices and reduced levels of operation on the oilfields, positives have emerged. The development of an oil-blending facility has begun at Saldanha Bay whereby oils – possibly from West Africa and South America – will be blended and re-exported, increasing the number of tankers calling from about mid-2018, when the first tanks should be operating. A planned offshore supply-vessel base in Saldanha Bay will only come into its own if local offshore projects come to fruition.

    Meanwhile, the import of gas at Saldanha has begun. The first shipment of liquefied petroleum gas (LPG) was discharged via a multi-buoy mooring into Africa’s largest open-access LPG import and storage facility at Saldanha Bay in May this year. LPG tankers will become regular visitors to Saldanha Bay to ensure that the Western Cape and a wider hinterland – including southern Namibia – are fully supplied with much-needed LPG.

    More gas-related activity in the Saldanha Bay area could be in the offing. To replace diesel fuel currently used in the Ankerlig power station, near Atlantis, north of Cape Town, the feasibility of using gas from the offshore Ibhubesi field is being investigated.

    The viability of establishing a gas-fired power station adjacent to the existing steel mill at Saldanha Bay has also been mooted, feeding the delightful prospect of more gas imports via the buoy in Saldanha or via a pipeline directly from the gasfield in the offshore Orange river basin, about 40 nautical miles off the coast and in water depths of 250m. The gasfield has proven reserves of 5.9 billion m3 and possible reserves of 15.3 billion m3. Establishing the field for production and the subsequent servicing of the installations will boost activity in the offshore sector with pipe-layers, installation vessels and supply vessels playing their respective roles. The greater the demand for gas, the quicker the field will be developed.

    Other gas activity on the East African coast also looks promising.

    In June this year, Italian offshore specialist company Saipem and energy company Eni signed a contract for offshore drilling off Mozambique, using the drillship Saipem 12000, which has been in the Walvis Bay anchorage since March this year. Set to commence in mid-2019, the contract will run for 15 months, with options of up to 45 months in duration.

    This is the first phase of the development of the so-called Coral South project, located in the deep waters of the Rovuma basin. The project involves the drilling and lay-out of six sub-sea wells connected to a floating production facility (floating liquefied natural gas), with a liquefaction capacity of more than 3.3 million tons of LNG per year, equivalent to about 5 billion m3

    There have been several false starts to the exploitation of the massive gas reserves off Mozambique, but if this one comes to fruition, it will involve a number of vessels – the drillship itself, pipelayers, heavylift floating cranes, offshore supply vessels and dive support vessels. The spin-off for the marine engineering and other marine service providers in Durban could be significant. This may well be the start of a wider offshore boom off the Southern African coast that could trigger an associated boom in shipping of the type that resurrected Aberdeen, Scotland, and in the process, created thousands of jobs.

    In another project for which the design and surveys have been completed, Oiltanking Grindrod Calulo Holdings will plan, fund, construct, maintain and operate a new liquid bulk-handling facility at Ngqura. Construction will begin later this year and the plant will begin operations late in 2019. The initial phase will provide about 150 000 m3 of storage for refined petroleum products to replace tanks at Port Elizabeth. Future phases will provide another 550 000 m3 of liquid storage.

    In Cape Town, the shipbuilding yards have continued construction programmes to produce patrol vessels, crew ferries and small tugs for the West African oil and gasfields. Besides the valuable foreign revenue earned by these projects, active shipyards and important skills are developed and can be used for further projects, each bringing even more revenue to South Africa.

    A latent bonanza awaits when the oil price increases and West African oil production – particularly the deepwater production – again becomes profitable. Demand for all classes of vessels associated with the oil and gas sector – offshore supply vessels, production rigs and others – will surge. And if an improved oil price can be sustained for a considerable period, prospecting will begin in earnest, drawing numerous prospecting vessels, including survey ships, drillships and their support craft.

    The development of new offshore fields will bring specialised vessels to the region. If demand for oil and gas-related vessels increases and vessels begin to come out of lay-up, a commensurate increase in repair work, refitting, general maintenance and modification projects will provide a valuable spin-off for Southern African marine engineering firms. Those located in ports closest to the oil and gasfields – notably Walvis Bay, Saldanha Bay and Cape Town – will be at the forefront of any resurgence in the offshore sector.

    By Brian Ingpen
    Images: Gallo/getty Images, Debbie Owen