Supply & Demand Dynamics
The demand for ERRV, and offshore service vessels (OSV's) in general continues to be driven by the world's increased energy demands. According to BP Energy Outlook energy demands will continue to grow at a pace of about 1.2% per annum until 2040 with oil and gas remaining the dominant source (circa 55%).
The ERRV market is highly cyclical. Utilization and rates are quick to react to oil price due to the influence oil price plays on oil company investment. As of mid-2020 oil prices have not reached levels to tighten a market that has become severely oversupplied through the high oil price years. Competition between vessel owners remains high and day rates low.
As of Q2 2020, OSV demand remains restricted especially following the events of the OPEC price war and the global pandemic. Using rig count as an indicator of demand all locations with the exception of Asia-Pacific have seen a large drop in offshore rig count. This has a direct impact on the number of supply vessels required to support operations driving both utilization and rates down.
Although there has been a slowdown in newbuilds (which is unlikely to increase given the current market outlook and low margins on existing assets) and no new capital entering the market, market oversupply remains the dominant force. With circa 3,500 available OSV's and roughly 250 offshore rigs in service as of July 2020 this implies a 14:1 ratio of OSV's to rigs. With a peak ratio of 4.5:1 back in 2013 the supply glut from multiple years of aggressive new-build programs will continue to depress rates for the foreseeable future.