Singapore's offshore sector is poised for a cyclical upturn and could soon see a return to newbuilding orders, a top local analyst has predicted.
"The rig market appears to have turned a corner in 2021 with oil prices exceeding $80 per barrel — this has resulted in stronger rig utilisation rates and a firming of rig day rates versus 2020," said UOB Kay Hian head of research Adrian Loh.
"The higher offshore activity expected in 2022 and 2023 underpins our positive view on the sector, especially given that meaningful rig supply was removed globally."
Loh said competitive utilisation for offshore rigs rose strongly in 2021 and now exceeds pre-Covid-19 levels.
"With the higher utilisation numbers, we believe that day rate numbers should follow and incentivise rig owners to place new orders," he said.
"Already we have seen firmer rig day rates on a year-on-year basis and we also note that particular regions like Brazil saw utilisation rates exceed 90% in 2021."
Loh said the demand for production assets "appears to have meaningful upside" in the next few years which could have positive ramifications for both Keppel Corp and Sembcorp Marine.
According to Norwegian consultancy Rystad Energy, offshore investments in 2022 are set to increase by 7% year on year from $145bn to $155bn.
"In addition, we highlight that the $150bn of greenfield projects sanctioned in 2021 will likely be repeated in 2022, thus underlining the positive outlook for the offshore marine sector in the short to medium term," said Loh.
The analysts said the situation is further improved by continued supply destruction with the global offshore rig count falling 7% year on year to 716 rigs.
"According to industry data, 42 rigs were sold for scrap or conversion, with semi-subs registering the largest supply destruction in percentage terms, down 12% year on year to 104 rigs," said Loh.
"In our view, this is positive for the industry as the extraction of excess supply should allow utilisation and day rates to firm up going forward."
Loh said that should activity in the oil and gas industry strengthen in 2022 and 2023 and thus lead to a revival in the offshore marine industry, he believes the sector could see a cyclical upturn start in the near term.
"This assumes that variants of Covid-19 are less lethal, and that governments are able to view the virus as endemic," he added.
