MARINE MONEY OFFSHORE OSLO, June 1, 2017
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At the start of the year, utilisation for mobile offshore drilling units (MODUs), the key demand driver for OSVs, was down to 21% for drill ships, 28% for semi-submersible and 51% for jack-up rigs. Global utilisation for OSVs is around 40%. (Source: TradeWinds) 3 of 38
Source: Lloyd’s List – Daily Briefing 11.05.2017 https://www.lloydslist.com/ll/daily-briefing/?issueDate=2017-05-11 4 of 38
Offshore Markets struggle with the same challenges that plague the shipping Industry DRILLING UNITS: Global count of active offshore units continues to decline. Increased Idling: In early 2016 there were 120 floating rigs 2 and 170 jackups that were stacked or There are currently 227 cold & warm stacked Jack Up Rigs 3 There are currently around 136 cold & warm stacked Ultra Deep Water, Deep Water and Mid Water drilling units 3 There are currently 134 New-buildings in the above categories 3 Recycling undershooting need of the hour: Reuben Segal quoted: “More than 370 Rigs of various types are stacked in warm or cold-lay-up.” 4 !! OSVS: Increased Idling: For “inactive” ships, as a conservative estimate, about 360 OSVs are said to be in layup in Southeast Asia. 4 Increase in Supply: After 3% growth in 2016, Clarksons predicts that the PSVs fleet will increase 2.5% this year and 3% in 2018. For anchor handlers, the estimates are for growth of 0.7% in 2017 and 1.7% in 2018. Utilization rates are region 40% this year for PSV/AHTS With more new buildings entering the market through 2017, which is already struggling with oversupply, a decrease in overall earnings and a bleak future outlook ……. RECYCLING is the likely option. idle 1 Sources: 1. Jon Fredrik, Muller Rystad Energy 2. Leslie Cook, Quest Offshore 3. Fearnley Securities 4. Tradewinds 5 of 38
Why massive scale of recycling has not taken place? 1. LTV 2. Low Residual Value 3. Logistics challenges 4. Relatively low stacking costs 5. Awareness of recycling options 6. Risks Headline • Regulatory • Liability • Commercial (market recovery, yielding space to • competitors, etc.) 7. Absence of end-to-end service providers 6 of 38
Robust recycling leads to: 1. Market equalization / balancing the world’s offshore fleet 2. Reduce losses / lay-up and stacking costs for owners 3. Remove old / aging fleets from service in favor of newer ones 4. Creation of secondary market for equipment 5. Help the order books in the long run 6. Introduce newer technologies and increase efficiency in the offshore sector 7 of 38
Few solutions to encourage recycling 1. LTV (love thy lender) 2. Low Residual Value (robust ship recycling options) 3. Logistics challenges (development of low cost options) 4. Relatively low stacking costs (kicking can down the road?) 5. Awareness of recycling options (cash buyers) 6. Risks Headline (logistics, recycling options, etc.) • Regulatory (HKC, BASEL, EU, SOC) • Liability (as is where is) • Commercial (market recovery, yielding space to competitors, • etc.) (USD 70+ in short-medium term?) 7. Absence of end-to-end service providers (GMS) 8 of 38
The Hammonia Grenada (built 2010) was sold for scrap at an estimated $5.5m earlier this year.
From 2013 to 2016, 2/3 of bulkers (or containerships) had earnings below OPEX 10 of 38
Overbuilding, cancellation of orders & yards going bankrupt 11 of 38
Offshore 2.7m DWT New Building (304VSLS) 2.9m DWT Scrapping (193 VSLS) Growth in Vessel No. 111 Growth Rate (DWT/TEU) 0.25% In Q 1 2017 Data Source: Clarksons Database 12 of 38
BRENT CRUDE Recycling Volumes in Different Sectors 35.0 (Million DWT) -3% 29 30.0 28 25.0 +86 % 20.0 15.6 15.0 +211% - 10.0 8.7 74% - 7.6 30 +38 +11 % % - % 4.0 5.0 20% 2.9 2.8 2.1 2 1.9 1.6 0.0 Bulker container Tanker Offshore 2014 2015 2016 12 of 38
Factors that Affect Asset Values (Recycling): 1. Supply 2. Demand 3. Commodities (Steel Prices) 4. Currency exchange rates 5. Government Regulations 6. Market Sentiment 14 of 38
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5 countries (with 80% Asian) recycle more than 95% of the world’s fleet Number of yards in each Country: Indian sub-continent India: about 170 yards Bangladesh : about 70 yards Pakistan: about 120 yards China: about 22 yards Turkey: about 20 yards * Note: all figures are approximates 17 of 38
Engine Furniture Chilling Electrical Compressors Cables Steel Scrap Kitchen Ware Waste <2-4% (only!) Re-Rollable Motors Spare Parts Pipes Steel When properly handled, recycling is, without question, a Green Industry. Resources generated by one industry can be used by several others e.g. spares, machinery and steel are used cost-effectively in several industries. 18 of 38
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Hong Kong Convention: The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 (the Hong Kong Convention), was adopted at a diplomatic conference held in Hong Kong, from 11 to 15 May 2009, which was attended by delegates from 63 countries. The Convention is aimed at ensuring that ships, when being recycled after reaching the end of their operational lives, do not pose any unnecessary risks to human health, safety and to the environment. Regulations in the new Convention cover: the design, construction, operation and preparation of ships so as to facilitate safe and environmentally sound recycling without compromising the safety and operational efficiency of ships; the operation of ship recycling facilities in a safe and environmentally sound manner ; and the establishment of an appropriate enforcement mechanism for ship recycling, incorporating certification and reporting requirements. (Source: www.imo.org) EU Ship Recycling Regulation (EUSRR): The objective of the Regulation is to reduce the negative impacts linked to the recycling of EU-flagged ships, especially in South Asia, without creating unnecessary economic burdens and by bringing into force, an early implementation of the requirements of the 2009 Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships, therefore contributing to its global entry into force. calling at EU port or anchorage) will be required to have on board anAccording to the new rules, the installation or use of certain hazardous materials on ships will be prohibited or restricted. Additionally, each new European ship (or a ship flying a flag of the third country inventory of hazardous materials verified by the relevant administration or authority and specifying the location and approximate quantities of those materials. The ships flying the flag of an EU Member State are only recycled in ship recycling facilities included in the European List . (Source: http://ec.europa.eu/) 22 of 38
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HKC SOC SARVAG HKC SOC LEELA 29 of 38
Once the IHM has been prepared, The facility will provide a Ship Recycling Plan (SRP) to GMS who will coordinate all the necessary procedures to be followed (i.e. marking hazardous zones, extraction, removal, transportation and safe-disposal). GMS will monitor the procedures undertaken by the recycling yard and will provide a bi- weekly / monthly recycling report to Sellers (based on prior agreement). This report will describe in detail, all of the procedures that were followed from the beginning of recycling of the vessel until the week before a final report is provided at the end of the vessel's recycling procedure. These include identification and generation of an Inventory of Hazardous Materials (IHMs), safe-removal, storage, transportation, and safe-disposal, setting safety measures on recycling activities, employee rotations, overseeing of safety measures, and effective conclusion to the overall recycling of the asset. At the end of the recycling procedure, a full report for the entire recycling procedure will be prepared. 25 of 38
GMS’s RSRP (Responsible Ship Recycling Program) operates under the IMO's Hong Kong Convention guidelines, which provides for environmentally safe and sound ship recycling, and the ILO (International Labour Organisation) requirements, which address the requirements for the safety of the labour force. Under GMS's RSRP, principals of GMS nominate a recycling yard of their choice that is capable of meeting sellers, national and international requirements. Dr. Nikos Mikelis who was previously with the IMO for several years and is considered as the "Father" of the IMO's Hong Kong Convention on the Safe and Environmentally Sound Ship Recycling, is a Non-Executive director at GMS overseeing our Green Recycling program. Under his guidance, GMS is able to accurately monitor global developments in the regulatory regime that affects the ship recycling industry. Dr. Anand M. Hiremath is based in Bhavnagar (India) and works closely with selected yards to ensure compliance of the guidelines established by the Hong Kong Convention (HKC) for Safe and Responsible Recycling of Ships. In this regard he liaises closely with SRIA, GMB, Ministry of Shipping and other local organizations and governmental institutions. Additionally, he is responsible for the development and implementation of GMS Responsible Ship Recycling Program (GRSRP) and is a certified IHM Specialist with the ability to generate in- house IHMS. 26 of 38
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