Robban Assafina goes through the Middle East’s offshore market, with a highly anticipated future of mixed energy

The Middle East region is heavily investing in its oil and gas industries, with no hesitation about growth and expansion plans. A great need of energy is putting forward greater schemes of developments and requirements; there is no doubt that offshore energy projects are on the right track and will continue in the near future.

In the aim of highlighting current opportunities and future options, Robban Assafina gathered insights from different experts’ viewpoints, looking at the current offshore status, market incentives, and major challenges along the way.

The Need for Energy
As the Middle East market is dealing with the increasing needs for energy, there’re various steps to be taken to meet growing demands. Shipping, logistics and marine services expert GAC Group, believes that the Middle East is increasingly being turned to help meet growing energy demands both locally and around the world. 

GAC’s Gopalakrishnan Srinivasan, Group General Manager, Special Projects, tells Robban Assafina that the offshore upstream spending in the Middle East is set to overtake other regions with investments poised to increase from US$33 billion in 2023 to US$41 billion in 2025, according to a report by Norwegian energy market research firm Rystad Energy. This renewed investment has resulted in a marked increase in the size, scale and number of oil & gas projects, especially as Saudi Arabia, Oman, Qatar, Bahrain and the UAE go full steam ahead with major offshore drilling extraction and production projects. Oil & Gas remains a cornerstone of the region’s economic growth and the development of offshore energy projects will continue in the near future.

Srinivasan supports this growth view stating that GAC has supported the Middle East’s flourishing hydrocarbons sector for over six decades with an array of integrated shipping, logistics and marine services which include rig moving services, end-to-end supply chain management services, warehousing facilities, crew support, freight logistics and more.

On the same side, Danial Kaabi, CEO of UAE based Sea Horizon Marine Services, also talks of the rapid growth happening in the offshore oil & gas in the Middle East market, with an increasing utilization and demand towards levels that have not been seen in the past 7 to 8 years. He sees this as a very vigorous market: “With all the oil majors increasing production in the energy sector, we know that right now is a great time for OSV owners. With increased demand, we are seeing older units enter the market but also the order book for new tonnage is becoming more realistic. The market is very bullish.”

 

 

Hydrocarbon Provider of Choice
Playing the global role of the energy exporter to the world, the Middle East region’s position has historically been built on the significant hydrocarbon reserves and production on which the it has earned its reputation. Mohammed Atif, Market Manager, UAE & KSA, Energy Systems, DNV, gives a more detailed image of this vastly progressing sector, with the hydrocarbon industry taking over the scene.

“The Middle East domestic electricity markets procure energy in general through competitive auctions/bidding with PPAs and a Single Buyer to contact for the offtake. Each jurisdiction in general publishes 7-year system development plans and decarbonization strategies. The future appears to be a mixture of solar, wind, natural gas and (in some countries) nuclear for electricity generation with oil to remain important for transport, aviation and petrochemicals. We do see increased plans to produce blue and green hydrogen/ammonia for domestic use and export to global markets.”

Based on the nature of its onshore and offshore reservoirs, the Middle East can generally produce the lowest cost oil in the world along with the lowest relative emissions per barrel and therefore well placed to be the hydrocarbon provider of choice on the international markets going forward, says Atif. “As DNV, we see a mixed energy system by 2050 comprising both renewables and hydrocarbons. This means in the global market looking for lower-carbon-footprint barrels, it seems likely that the hydrocarbon industry in the Middle East will remain a competitive exporter of oil & gas for longer than other regions globally.”

Main challenges
But of course, with development comes challenges. The Middle East’s offshore market is going bigger and bigger, facing challenges along the way, starting with the future design and technology of the vessel, as Kaabi states. “Right now, we are seeing the demand for more advanced technologies on board vessels and with an upward demand, we are very eager to see what the vessel of the future is. The biggest challenge is to retain as much profit as possible while adapting to the technology advancements needed in the oil and gas sector. With incentives from the oil and gas majors, we can be supported but currently that is not the case.”

Along with success comes a price as well. GAC mentions that offshore oil and gas projects are expensive, involve multiple moving pieces and have long lead times. They require operations around-the-clock as the Middle East looks to maintain its position as one of the leading hydrocarbons producing regions. Ongoing supply chain challenges and inflationary woes add to the challenges of keeping these projects on time and on budget, as accessing a vital part or service for an offshore project can take much longer than anticipated. 

Here Srinivasan explains: “Like most long-term projects, even seemingly small-scale or one-off tasks that are not well-managed can create a domino effect, generating additional costs and delays for projects which already take several years to materialize from initial bidding to full operation. Increasingly, developers need careful forward planning and the right support from suppliers. And with supply chain spending for offshore services market set to grow 16% over the next two years, a decade-high year-on-year increase of US$21 billion, the stakes are high.”

Mentioning the challenges, DNV’s Jan Zschommler, Market Area Manager Middle East & Africa, Energy Systems believes that for the companies in the offshore supply chain, there is an increased pressure on offshore vessels and rigs to convert to fuels with lower carbon footprint: “The offshore sector working for renewable projects needs to do so with the lowest carbon emissions. Oil and Gas companies looking to make good on the GHG scope 1 and 2 emission pledges also need to look into converting their fleets. This can be done through drop-in biofuels, methanol, or ammonia.”      

 

                 

Renewable Energy
Renewable energy is in its nascent stages of development in the region, but where is the development of offshore wind energy now? Solar power, according to Srinivasan, remains the primary driver of green energy, and a capacity of more than 12.44 GW has been installed so far, according to data by Mordor Intelligence. But he believes that the region is ready for wind development.

“While the appetite for offshore wind is relatively small-scale compared to Northern Europe or Southeast Asia, the region’s long coastlines, large deserts and strong winds offer great potential wind resources. Backed by the Gulf’s local investment power, talent, infrastructure and mature support services, the Middle East has what it takes to build the foundation needed to develop robust offshore wind capabilities. And if an opportunity arises, GAC can draw upon the experience of our industry experts in offshore wind energy projects across our global network to provide comprehensive support.”

On the same level, speaking of offshore wind developments, Zschommler says that this market still sees only limited progress in the Middle East for lack of attractive (low LCOE) locations. Instead focus of ME for offshore wind is on being the supply chain partner of the leading offshore wind countries in Europe, Asia and North America. ME is also eyeing a similar fabrication role for floating offshore wind, which is still in very early stages globally, but projecting exponential growth.

And as positive expectations surround our experts’ viewpoints regarding the offshore wind industry, Kaabi says that the infrastructure will soon change even though it is still not as relevant as it should be in the Middle East. In the context, the global offshore wind expansions will create an even larger opportunity for offshore vessels in the market as vessel owners have alternative uses for their vessels.

IMO’s Regulations
From a regulatory side, IMO continuously releases rules and regulations related to the offshore market, as well as a revised IMO GHG strategy to put the maritime industry on an accelerated path to zero emissions. But what does this mean for the offshore industry?

Nair Bijali, VP – Regional Offshore Manager, DNV Maritime believes that “for the offshore industry, this indicates that we will see recent trends like increasing hybridization, low and zero-carbon fuels, greater energy efficiency, and an increase in uptake across the segment. For installations, the drive to reduce operational emissions is likely to be pushed by stakeholders inside and outside the industry. And as companies look to maximize efficiency and cut fuel use, there is likely to be more use of digital solutions and increasing automation.”

 
 

He continues: “The Middle East is well positioned to capitalize on its leadership in the offshore segment, to drive technology uptake, trial new rules and regulations, and integrate learnings from around the globe. However, this will require both great regional innovations, through initiatives like “Green corridors”, and cross-industry cooperation.”

However, and in the light of the new regulations coming into force, the industry must be fully prepared. As IMO’s new Chapter XV of the International Convention for the Safety of Life at Sea (SOLAS) and the associated new International Code of Safety for Ships Carrying Industrial Personnel (IP Code) comes into force in July 2024, Srinivasan says that the Middle East will need to be acutely aware of these regulations and how they can affect offshore project developments, as these new safety codes for ships carrying industrial personnel aim to ensure the safety of people transported to work on offshore facilities. Project developers, as well as support service providers like GAC, must look to be prepared before these regulations come into force. In the same context, IMO regulations related to fuel efficiency is what to look out for, according to Kaabi. “With adaption of new fuels and dual powered engines, this is something we look towards at our company as the adaption of cleaner fuels are very important to us. 

This is why we make it a point to always look for diesel electric vessels or vessels with advanced fuel efficiency systems on board (i.e. Fueltrax) while chartering or purchasing.”

Reference: Robban Assafina Magazine, Issue 86, Jul/ Aug 2023, Edition Story, pg. 93