Rig demand will exceed supply beyond 2008
Tom Marsh, ODS-Petrodata Inc.
As of late June 2006, 91 mobile offshore drilling units were under construction or on order worldwide, and another 46 were in shipyards or being readied for upgrades and rebuildings of varying magnitudes. Thirty-six of the rigs under construction or on order have been ordered since the first of the year, and more orders for new rigs are expected. The offshore industry has not seen a construction boom like the current one since the early 1980s, as illustrated in the chart below.
Broken down by type, rigs currently under construction or on order include eight drillships, 57 jackups, 23 semisubmersibles and three tenders. Major upgrades are underway or planned on four drillships, three jackups, eight semis and two tenders, while minor upgrades are underway or planned on five jackups, 12 semis and an arctic rig.
Of the rigs under construction or on order, only 14 were ordered on the strength of firm contract commitments. The other 78 were ordered on a speculative basis, and a number have changed hands over the course of the last year, sometimes even before construction has begun. The total cost of the rigs currently under construction or on order exceeds US $22 billion.
With this level of activity, shipyard space is at a premium, and some of the work is taking place at yards that have not undertaken rig work in years. However, Singapore’s Keppel FELS group, arguably the world’s most experienced rig builder in terms of recent new construction, leads the pack with over one-third of all current projects where a shipyard has been designated. In fact, Singapore shipyards overall have landed the bulk of the new construction and upgrade work, with 62 projects currently underway or slated for Singapore yards. Of note in second place are U.S. yards, once written off as obsolete and uneconomic by many. However, U.S. yards second place ranking is a distant second place with 25 current or planned projects. South Korea and China round out the top spots with 11 and 10 current projects, respectively.
With even more new rig orders expected, will the new construction flood the rig market and sink day rates, which are at record levels for some rig classes at present? Probably not: ODS-Petrodata forecasts that rig demand will exceed supply beyond 2008, particularly in the deepwater market. However, with 57 units under construction, the jackup market may experience a hiccup along the way that could see a temporary softening in day rates as the new capacity is absorbed into the fleet.
