Slow market hampers open-deck, semi-submersible carriers

Slow market hampers open-deck, semi-submersible carriers

The RollDock Sun will make seven voyages transporting a total of 24 modules from the United Arab Emirates to Port Arthur, Texas, for a Total ethane cracker. Photo credit: RollDock.

Overcapacity and lackluster charter rates are weighing on the semi-submersible and module carrier market, even as a raft of new projects offers promise of better times in the next two to three years. That comes as the market for semi-submersible and module carriers is increasingly dominated by the transport of modularized cargo, senior shipping executives said.

Peter Hansen, president of Cosco Shipping Heavy Transport, told that a sustained rebound in oil prices over the last three years — currently averaging $71 a barrel, up from a low of $28 a barrel in January 2016 — “has moderately increased utilization, with some projects now being sanctioned.”

Further outlining the promise that lies ahead thanks to a splurge of projects awaiting the green light, Roberto Frigeni, president and managing director of RollDock USA, said, “The potential is immense to the extent there could be a shortage of ships, especially at the high end for large, sophisticated vessels.”

These planned projects are across all sectors but particularly liquefied natural gas (LNG), wind power, and midstream petrochemical plants. “There are many projects in the pipeline that have still to be awarded to carriers. Some are at the final investment decision stage, some are awaiting notice to proceed,” he said.

Labor costs, shortages driving modularization

Royal Boskalis Westminster, which operates a fleet of 11 semi-submersible vessels mainly acquired from takeovers of carriers Fairstar and Dockwise, said in its 2018 annual report that the near-term market for semi-submersible and module carriers remains under pressure and dependent on the spot charter market, but long-term projects were brighter. “Based on the current tender activity and market, the mid- to long-term prospects for the high-end market look encouraging.”

Boskalis sees new opportunities for transporting box-shaped floating production, storage, and offloading vessels. In February, the carrier won a $55 million contract, with options for a further $30 million worth of work, to transport modules from China to North America for an LNG export facility. Boskalis did not disclose details of the project, but said in a statement that the deal “ties up two high-end open-stern heavy transport vessels commencing the second quarter of 2021 through to the third quarter of 2022.”

Boskalis vessels include Boka Vanguard, capable of carrying cargoes weighing up to 110,000 metric tons. In 2018, the ship transported a 90,000-metric ton P67 floating production, storage, and offloading (FPSO) unit from Qingdao, China, to Brazil’s Lula-Cernambi oilfield in the Santos basin, being developed by Petrobras.

Globally, increasing labor costs and labor shortages on the project owner and engineering, procurement, and construction (EPC) side are driving a trend towards the modularization of cargoes. “We’ve seen an increase in modularization, but it depends on the EPC contractor. The US Gulf is a mix of modularized and loose-item cargoes. In British Columbia, the Canada LNG and Woodfibre LNG projects will be built using prefabricated modules,” said RollDock’s Frigeni.

“Remote projects require modularization because of the shortage of skilled labor. But some projects are [stick-built] at site because there is a huge labor requirement and politicians have backed the project because of the promise it will provide labor and employment,” he said. Modularization favors transport via semi-submersible and module carriers because of the ships’ wide-open rear decks. Extremely large modules, some weighing thousands of metric tons, and very large units related to oil and gas construction, can be rolled or floated aboard.

Overcapacity weighing heavy

For the semi-submersible sector, a surplus of tonnage is still an albatross. “Continuing low freight levels within the spot market can be attributed to an oversupply of vessels,” Hansen said.

“At the moment, the worldwide module carrier fleet is only 50-60 percent utilized,” Frigeni said. Looking at the broader multipurpose and heavy-lift (MPV/HL) sector, he said, “In our opinion, we could scrap 30 percent of the heavy-lift and project cargo fleet before rates stabilize and we start to see an increase.”

Module carriers and semi-submersibles represent a very small, extremely specialized portion of the heavy transport market, or as Frigeni put it, “It’s a niche inside a niche.” RollDock provides engineering, land transport, and related services, he said. Other key module and semi-submersible carriers include Boskalis, BigLift (which also operates super-heavy lift vessels and is a sister company to multipurpose carrier Spliethoff), and Cosco, which also operates a large MPV/HL fleet.

Despite the glut of tonnage, however, further consolidation in the semi-submersible niche is unlikely, carrier executives said. “In our segment, there’s probably not a lot of consolidation left,” Frigeni said. “Zeamarine has been absorbing a lot in the heavy-lift market. Now there are probably four large project cargo carriers: Zeamarine, Cosco, Spliethoff-BigLift Shipping, and BBC Chartering. I don't think they'll merge into two.”

More pools and joint ventures are also unlikely, in Frigeni’s opinion, unless driven by specific project requirements. "Joint ventures and pools, most of the time, never work. ... To create a successful pool, partners need to think alike," he said.

“We had a joint venture with BigRoll [a partnership between BigLift and Roll Group, parent of RollDock] but that was mainly for the Yamal LNG project in Russia,” Frigeni said. After Yamal ended, the partners separated. On another project, joint EPC contractors Technip and Fluor demanded the module carrier operators work together because they didn't think one carrier could execute the project alone.

Against this backdrop, there is little likelihood of semi-submersibles or module carrier newbuildings being ordered, except where necessary for specific projects. Cosco Shipping Heavy Transport, for example, is planning to expand its fleet of semi-submersible ships with a fourth 50,000-dwt heavy load carrier. “We are building one additional X-Class vessel — to join sister ships Xiang He Kou, Xiang Rui Kou, and Xiang Yun Kou — for the upcoming Canada LNG project which requires four vessels of this size,” Hansen said. Details of the newbuilding schedule have yet to be finalized.

Plastics, LNG lifting growth prospects

Hansen, who is based in Houston, said Cosco expects an increase in LNG developments worldwide partly due to increased demand from China, “which leads to an increase in potential onshore module based projects.” Among major projects awaiting the go-ahead are the $18 billion Rio Grande LNG export facility near Brownsville, Texas, the $30 billion Driftwood project on the Calcasieu River in Louisiana, and Anadarko Petroleum’s $20 billion LNG scheme in Mozambique.

“We do not see the offshore market rebounding completely, but onshore module transports are increasing,” he said. “There are also some potential opportunities in the wind farm and decommissioning markets.”

Cosco Shipping Heavy Transport has carved out a niche after pioneering the dynamic positioning (DP) float-over method to transport and install topsides — the upper section of an offshore oil platform. In October, Cosco’s DP2 vessel, Xiang He Kou, installed the 18,000-metric ton BorWin Gamma topside, the first topside module to be installed in the North Sea using the method.

Cosco ships also installed three topsides using the DP float-over technique last August and September as part of the Nasr Full Field Development Package-2 project in the United Arab Emirates, and Cosco semi-submersible Tai An Kou carried out two DP float-over installations in the Middle East in late 2018. “We can’t speak for the others, but we have a good utilization rate for our fleet,” Hansen said.

Even so, volatile oil prices are still casting a shadow over the market. “In the US, we are still talking about projects we were talking about six or seven years ago,” Frigeni said.

Investment in wind energy, which saw a record 4.9 gigawatts of offshore wind projects come onstream globally in 2017, according to a Deloitte Insight commentary, has also provided a welcome fillip for semi-submersible and module carrier operators, helping to support the sector even as volatile oil prices curbed investment. The key offshore wind markets of the UK, Germany, Denmark, and China will be joined by the US and Southeast Asia by 2030, analysts said.  

But most of the focus for RollDock and Cosco remains in the US and Europe, Middle East, and Africa (EMEA) region. “Some 75 percent of our business is in the US,” Frigeni said. This US focus extends to energy companies and their EPC contractors such as Bechtel and Fluor. While the primary focus is on LNG and oil projects, Frigeni said the shale boom is also driving investment by petrochemical companies in midstream projects — propane dehydrogenation (PDH) and ethylene plants that create chemicals and plastics used in clothing, tires, and packaging.

Petrochemical products are expected to account for about 35 percent of global oil and gas demand growth by 2030, rising to nearly 50 percent by 2050, according to the International Energy Agency, and the American Chemistry Council estimates shale boom-related investment by the US chemicals industry is now more than $200 billion.

“Today the market is more related to midstream — plastics, etc. — and LNG, especially in the US,” Frigeni said. “America is going through a second boom, a second wave of energy projects due to the development of midstream projects. Gas prices are plateauing, which is why midstream companies are using technology to convert gas into plastics.

“Now nobody is drilling for oil. Energy companies are mainly drilling for gas,” he added. “Drilling for offshore oil in the US has gone pretty much dead ever since the Macondo accident in 2010.”

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