Apr 22 | 2021
(Global) Project Logistics Activity Forecast for Growth
By Malcolm Ramsey
With oil and gas prices having taken a rollercoaster ride over the last year, the outlook for breakbulk activity across the sector remains highly uncertain as many projects await final investment decisions.
Despite this, many operators foresee the potential for a strong recovery this year as economic upturn drives development.
Following the onset of the global pandemic, and a brief slide into negative territory for oil prices last year, forecasts for growth and investment in the sector have been highly varied, with commentators predicting everything from a sharp rebound to the end of oil and gas.
“Many oil projects have been severely affected by the current crisis and have not only suffered a temporary demand shock, but have also adjusted their long-term oil price forecasts. One the one hand, experts such as Rystad Energy believe that under the rapid alternative energy adoption scenario, oil production has peaked or could peak in the mid- to second half of the 2020s … On the other hand, many of the global oil and gas players are expanding their business fields and investing in wind, solar, hydrogen, biofuel and LNG plants, etc., which has already started to increase demand in the project logistics market,” Karen Clarke, corporate global key account manager oil and gas at project forwarder deugro told Breakbulk.
Long lead times and life cycles for oil and gas investments also compound uncertainty for many projects as the transition from traditional projects to new blended or renewable projects will likely take some time for most energy majors.
Kent-Ove Jacobsen, business developer project cargo for breakbulk carrier G2 Ocean, nevertheless expects a moderate recovery for breakbulk in the short term: “Due to the impacts of the Covid-19 pandemic on companies and governments, as well as supply chain bottlenecks of equipment and materials, large capex projects in the oil and gas sector have been delayed, and some postponed or cancelled. We expect a slow recovery in the market during the third and fourth quarter of 2021, depending on how the Covid-19 pandemic develops.”
German shipping group BBC Chartering is bullish on the outlook for oil, predicting a strengthening of demand. Marko Stampehl, global head of marketing, noted. “For the short to medium-term outlook, we are rather optimistic, whilst it is difficult if not impossible to make assumptions or forecasts as to when and how the long-term oil demand will have its implications on the breakbulk sector. So far the oil price has been a more decisive factor.”
One key outcome of the Covid-19 pandemic may be a global shift in activity with many breakbulk operators foreseeing an increase in activity in Asia, and specifically China, as production moves away from U.S. shale and more technically difficult fields.
“We see more and more production of equipment moving from China to Southeast Asia, and increasing investments into Africa. Based on this, we believe these regions will become increasingly important for project cargo shipping. We also foresee growing demand in South and North America, mainly due to new infrastructure investments and an accelerating focus on renewable energy,” said Jacobsen of G2 Ocean.
Clarke of duegro highlights the Russian market as a crucial growth driver and notes, “The U.S. Gulf Coast may be the largest hotspot for LNG and petrochemical projects, and we have been and currently are involved in several projects such as a chemical expansion project and an LNG project in North America. Another bright star on the map is southern and eastern Africa, where we are executing the Coral FLNG Project and expecting a major upswing in cargo movements once the Tilenga Project in Uganda and the associated 1,450-kilometer East African Crude Oil Pipeline Project kicks off.”
duegro predicts that natural gas demand will continue to grow for about 20 years, under a neutral energy transition forecast, bringing with it further investments and projects. The growth of LNG bunkering infrastructure along global trade lanes and scaling up of bioLNG technology is expected to boost demand for gas, as many of the largest vessel operators switch from oil to LNG.
The rapid shift in strategy towards renewables and net-zero solutions by some of the biggest oil and gas majors over the last year is expected to create continued uncertainty but along with it significant upsides for breakbulk logistics as capex spending is diverted to major new offshore wind projects.
“We expect the demand for onshore wind to continue to grow steadily in developing markets and Europe, as well as to a certain degree in the United States, as net expansion remains positive and older wind turbines are replaced with newer ones. Offshore wind is expanding rapidly, and as turbine and project sizes grow, we expect a sharp increase in the demand for all types of ships,” Jacobsen explains.
Clarke of duegro concurs noting that, “Many of the major oil and gas players are setting clear climate targets and investing billions in the renewable energy sector … Due to the urgent need to comply with the Paris Agreement, there are substantial subsidy programs around the world, and countries such as the U.S. and China are already in talks regarding closer cooperation. Major global oil and gas players are already investing in such projects and driving the shift toward greater sustainability.”
While investment in renewables is expected to grow many aging refineries and plants will still need to be renovated and upgraded driving further logistics demand in the medium term.
“For the short- and medium-term we actually see more and more inquiries coming in. Some of these come from clients who want to get an update on discussions we started maybe years ago, where project realization now seems more likely to happen. Various projects had been delayed or mothballed a while ago. A few mega projects in the oil & gas sector are likely to happen, with smaller part cargoes already being carried. In the end these still depend on factors like the world economy or the oil price which currently appears to be quite okay, but to generate confidence and an investment-friendly atmosphere, the sector needs an oil price sustainable above US$70/barrel,” said Stampehl of BBC Chartering.
“All this indicates that demand will recover and increase from the oil and gas industry and beyond for transports in these project segments. This, coupled with the recent months’ turbulence in the shipping markets (container shortages in Asia, port congestions in key box ports, rate frenzy driving containers to MPVs), prolonged by the recent Suez Canal blockage, will mean that demand will continue to outstrip supply in the markets. This, in turn, will cause challenges for commissioned projects and also have an impact on the budgets for developments currently in the planning phase,” Clarke of duegro explains.
Jacobsen of G2 Ocean comments, “With increased demand for energy, enhanced financial support for renewable projects from governments, as well as the global orderbook for new ships reaching historically low levels, the long-term outlook for project cargo to the energy industry, especially within renewables and gas, seems promising. G2 Ocean has served the energy sector for nearly 30 years, and we look forward to continuing supporting this industry with safe, reliable, and cost-effective shipping solutions in the exciting years to come.”
Subscribe to BreakbulkONE and receive more industry stories and updates around impact of COVID-19.