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Last Updated: March 28, 2017
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Marine & Offshore
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A Bloomberg analyst pointed out that the recent share market rally in Singapore was underpinned by stocks of ship and oil rig-makers, despite the sectors’ fundamentals being weak. The rally, he concluded, was floating on a bit of foam.

Since the crash of oil prices in late 2014, the Singapore offshore services and engineering industry has been hit hard. Anticipating that the good times would continue – always a fallacy – all the capital expenditure and debt incurred from oil’s boom over 2009-2014 came back to haunt the sector after upstream work dried up in the past two years.

Singapore, being the nexus of much of the rig-building, offshore vessel and mechanical engineering contracting in Asia, has been hit the hardest. It came with a delay; the hope was that oil prices recover in 2016 after plunging in early 2015, but that never came. So when Swiber Holdings declared bankruptcy last August, it was a surprise to no one in the industry. In such a downturn, there are always casualties, and other companies – Swissco, Ezion Holdings, KrisEnergy – were also facing critical times. Debt holders of these companies, mainly Singapore banks, had to take a haircut. In response, the financial industry tightened up its portfolios while the Singapore government pledged to aid the industry, but stopped short to bailing the companies out.

The saga continued last week. Industry darling Ezra Holdings – once worth US$2 billion – filed for Chapter 11 bankruptcy in the USA. The international filing is unusual, but it does offer legal and enforcement action protection worldwide, as it attempts to restructure. Also declaring Chapter 11 are related entities Ezra Marine Services and EMAS IT Solution, and possibly also circling the drain is Ezra Holdings’ debt-ridden subsidiary Emas Chiyoda Subsea, which owes the former some US$170 million. Ezra Holdings’ last published earnings declared losses of US$339.6 million, with US$1.51 billion of liabilities. Court filings show that its 20 largest creditors are owed some US$600 million; one – Norwegian shipowner Forland Subsea AS – has agreed not to pursue to repayment of a defaulted charter payment, but the rest are not being so patient.

As Ezra Holdings battles to survive, new concerns over the health of the industry have been cast. Though some argue that Ezra was poorly managed and over leveraged to begin with, it may not be reflective of all other players in the industry. However, investors seem sanguine for now. The banks, for example, have already identified Ezra as a threat, with DBS moving its US$270 debt owed to ‘non-performing’ while OCBC has been stress-testing the sector since Q32015. The financial industry, by and large, has already reduced its exposure to this murky pool, but turbulence beneath the surface still threatens the industry itself. Analysts and auditors are already looking for the next trouble – with Malaysian vessel builder Nam Cheong, Singapore’s Loyz Energy and Rickmers Maritime named as potential threats. Yet, there are those that are hunting for a bargain – British engineering specialists Subsea 7 has expressed interest in purchasing Ezra Holdings assets, as well as those of its embattled joint venture Emas Chiyoda Subsea.

With oil prices having recovered somewhat, the forecast might be brighter, but brace yourself, there are still squalls to come as the upstream industry further consolidates and reinvents itself. Oil companies are putting a lot more cost pressure across their supply chain, and offshore marine contractors are not excluded from this picture. Previous charters rates will certainly not re-appear in the medium terms at least hence the business model of vessel owners will need serious tweaking. Those willing innovate and put their re-engineering skills to use, may look at diversifying their business into offshore renewable energy and other seabed mining sectors. 

Easwaran Kanason

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The New Wave of Renewable Fuels

In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.

Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.

Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.

This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.

But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.

In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.

But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.

Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.

Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.

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Market Outlook:

  • Crude price trading range: Brent – US$71-73/b, WTI – US$68-70/b
  • Global crude benchmarks have stayed steady, even as OPEC+ sticks to its plans to ease supply quotas against the uncertainty of rising Covid-19 cases worldwide
  • However, the success of vaccination drives has kindled hope that the effect of lockdowns – if any – will be mild, with pockets of demand resurgence in Europe; in China, where there has been a zero-tolerance drive to stamp out Covid outbreaks, fuel consumption is strengthening again, possibly tightening fuel balances in Q4
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