Singapore’s shipyard may have to wait another year before offshore newbuilding orders resurface, according to one local analyst.

“Rig day rates and utilisation levels deteriorated in the first half of 2020 and chances of a recovery in the offshore and marine sector in the near term remain low in our view,” Adrian Loh, shipbuilding analyst at UOB Kay Hian, said.

“The industry outlook remains challenging and new order flow may only re-surface in the first half of 2021 in our base-case scenario. This reinforces our view that an up-cycle is over two years away.”

Despite the re-opening of economies globally, Loh said oil demand is likely to remain weak, while a potential second wave of Covid-19 infections presents “downside risk to oil demand in the near term”.

As a result, Loh said he is not confident that Brent oil prices will remain above $45 to 50 per barrel in the near term, and therefore oil companies are unlikely to resume capital expenditure (capex) spending.

“Entering 2020, the big five oil majors — BP, Chevron, Exxon, Shell, Total — had planned more than $112bn in capital expenditure,” Loh said.

It will take very bullish market conditions to reactivate the cold-stacked rigs given the time and cost required to bring them back up to fully operational standards

Adrian Loh, shipbuilding analyst at UOB Kay Hian

“However, these numbers have been significantly reduced since the onset of the Covid-19 pandemic and the brief, but damaging OPEC-Russia oil price war.”

In total, the five majors have cut around $29bn of capital expenditure for the remainder of 2020, or 25% lower than their original plans.

After a reasonably strong level of licensing activity in 2019, Loh said the viewpoint at the start of 2020 looked “reasonably positive” given the stable oil prices and a benign demand/supply scenario.

“However, this has clearly been derailed and the more than 50 licensing rounds that were expected this year have largely fizzled out,” he said.

“As a result, given the long lead times necessary to negotiate rig charters, purchase equipment as well as obtain regulatory approvals, any tenders in the coming few months will have to be for work commencing in 2021 and beyond.”

Globally, there are currently 304 inactive rigs with 122 or 40% of these rigs being cold stacked.

“Although there are fewer cold-stacked rigs in Asia, the fact that three in five rigs are not working indicates an industry that is in a very parlous state at present,” Loh said.

“In our view, it will take very bullish market conditions to reactivate the cold-stacked rigs given the time and cost required to bring them back up to fully operational standards."

Seadrill, for example, expects to scrap 10 of its cold-stacked rigs — mainly semi-submersibles — due to the lack of work prospects.

In contrast, Loh said the continued growth in renewables remains a “medium to long-term opportunity” for Keppel Corp and Sembcorp Marine.

“According to Rystad Analytics, European capex on offshore wind is set to reach parity with oil and gas capex in 2021, and surpass it by 2022 as a consequence of both lower oil prices and increasing levels of offshore wind activity in Europe,” Loh said.

Offshore wind capital expenditure in Europe has reportedly surpassed $10bn in 2015 and has since ranged between $10bn and $15bn per year.

“Annual capital expenditure levels are expected to rise from around $11.1bn in 2019 to around $13.8bn in 2020, $18.2bn in 2021 and more than $22bn in 2022," Loh said.

“Conversely, upstream offshore oil and gas capex in Europe is expected to decline from more than $25bn in 2019 to less than $17bn in 2022."