Demand for offshore rigs for overseas drilling has skyrocketed this year even as US oil rig growth has stalled. According to baker hughes, there are now 622 operating oil rigs in the US, down from 683 operating in March 2020 at the start of the pandemic and unchanged from six weeks ago. This has caused daily rates to skyrocket and drilling contractor shares to soar with transocean ltd (NYSE: RIG) up 49.7% year-to-date; Valaris Ltd. (NYSE: VAL) has soared 75.1% while Noble Corp. Plc (NYSE: NE) has gained 45.1%. In stark contrast, demand for offshore rigs is booming, with S&P Global reporting that daily rates recently topped $400,000, up from $300,000 in June and less than $200,000 two years ago.
James West, Evercore’s senior general manager, has outlined three key reasons for these developments:
- US big oil exxonmobil (New York Stock Exchange: XOM), Chevron (NYSE: CLC) and i know phillips (NYSE: COP) have already secured the rigs they need in the country, while their private rivals are showing little interest in expanding due to budget constraints and lower oil prices.
- These big oil companies are also moving more of their drilling offshore and abroad because US shale opportunities are now constrained with all prime acreage already taken.
- National oil companies (NOCs), including those of Saudi Arabia, Abu Dhabi and Kuwait, are currently expanding offshore production as they seek to regain market share from the bigs, which have of late focused more on returning excess cash to shareholders in the form of dividends and share buybacks rather than expanding production.
The energy crisis sparks a mad rush for floating LNG terminals
In the natural gas sector, demand for LNG Floating Storage and Regasification Units (LNG-FSRUs) has risen sharply this year, and Europe faces energy supply crunch as Russia has progressively reduced gas flows through the pipeline.
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Demand for LNG imports has intensified after ruptures in the key Nord Stream pipeline system wiped out any chance of Russia reopening its gas taps. This has forced dozens of countries in Europe to resort to the FSRU or floating LNG terminalswhich are essentially mobile terminals that offload the supercooled fuel and funnel it into terrestrial networks.
Currently there 48 FSRUs in operation globallywith Rystad Energy revealing that all but six of them are locked in forward contracts.
According to energy think tank Ember, the EU has lined up plans for up to 19 new FSRU projects at an estimated cost of €9.5bn.
The biggest beneficiaries are the Korean shipyards, for whom the FSRUs are a major revenue generator. Korea is the ultimate world leader in this field. According to local media, Korean shipyards have managed to book 46% more orders so far, year-on-year. And the government’s goal is for the country to get 75% of the market share by 2030.
The setup couldn’t be better. With the supply of these ships so limited, the cost of freight to Germany has doubled year after year to $200,000 per day.
“Last year there was a surplus of FSRU and this year there is a deficit. So far there have been enough boats on the market, but since most have already been taken, it is getting more challenging.Per Christian Fett, global head of LNG at the Fearnley LNG shipping corridors in Oslo, told Bloomberg.
Texas-based Excelerate Energy Inc. is shipping three FSRUs to Europe with combined production capacity to import 15 billion cubic meters of gas, or around 10% of Russia’s pipeline and LNG imports in 2021. Demand for the terminals in Europe is so strong that it could make them less affordable for emerging nations to use FSRUs for their own needs. “The risk is real that underutilized facilities in other regions of the world could move to Europe, if the terms of the current charter allow it.”, said Kaushal Ramesh, a senior analyst at consultancy Rystad Energy.
The Netherlands has received its first LNG delivery at a new terminal, boosting Europe’s efforts to wean off Russian gas. Previously, the Netherlands could only import LNG through Rotterdam; however, that has changed with the commissioning of two FSRUs, Golar Igloo and Eemshaven LNG, moored at Eemshaven. The FSRU project was completed in record time Use the sharing tools found via the Share button on the top or side of the articles. With the pair of floating ships now supplying gas to the Czech Republic and landlocked Germany.
“The arrival of the new LNG terminal is an important step not only for the Netherlands, but for all of Europe to completely eliminate energy dependence on Russia as quickly as possible.”, said Rob Jetten, Dutch Minister for Climate and Energy. FRSUs offer the fastest and most efficient way for Europe to stop relying on pipelines that bring large amounts of natural gas from Russia.
Alex Kimani for Oilprice.com
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