Energy Logistics and Projects Outlook

Energy Update - Logistics in 2022 and beyond

George Schutte leads the energy industry vertical at Crane Worldwide Logistics as Vice President, Energy Services. With over twenty years of experience and a wealth of knowledge in the energy industry, George answered our questions to share his industry insight and expertise regarding the economic impact on the oil and gas industry and the project logistics outlook in 2022 and beyond. Read more below and reach out if you have any questions about our energy logistics services.

What does future investment in the upstream oil and gas sector look like?

In an environment focused on maintaining during the acute phase of the pandemic, it can be hard to judge the market's direction long term. Partly, for logistics providers, that is due to the business horizon gap to the oil industry.?Oil plays/plans are long-term focused (15+ years), with the freight industry being more short-term or cash flow focused entities. That being said, our world is very dependent on oil and its multitude of uses beyond just fuel. Increasing demand requires increased infrastructure and capacity to meet that demand.

In addition, there is a need to lower costs and therefore accessibility, which includes bringing the source closer to demand.?From that perspective, international exploration and production energy players have to continue at some pace throughout the foreseeable future. We would expect global exploration and production work to continue and increase for the long term.

Modernization, or more directly increased capacity and lowered costs through better technology and facility improvements, will be high on the target list for operators in the long term. Capacity and project solutions will still be needed from the logistics industry perspective.

Specialized transport will still be required. We would have the view that either way, increased capital spending increases demand for logistics services.

Upgrades to existing/aged facilities will drive new challenges for installation as well as scale.?The important thing is that the industry gets back into spending mode in the long term. I could foresee that a stronger focus on enhancing existing fields will narrow geography for new developments.

This would be necessary both for efficiency and in terms of using CAPEX available for new developments wisely and on focused, higher returned plays. The development will increase the need for a higher qualified logistics hub system and a focus on more agile project teams with a high level of competence in moving capital equipment.

Additionally, with the renewed green focus trending is the long-term conversion to more clean and efficient facilities.?Upgrading old assets requires the fabrication of new infrastructure and capital plans. We would expect a somewhat shorter timeline for project execution. However, the size and scale of the envelope will increase and require a faster-paced approach to the delivery model. Ships go as fast as they do, but the origin and destination handling (read competence) as well as maintaining schedule integrity will define the long-term market leader in this space.

In summary, we would foresee an increased focus on optimizing existing infrastructure as a top priority. Thinking long term, we would still see steady increases in garnering new capacity and in new field development, albeit somewhat reigned in from the wild activity of times past. We anticipate increased logistics outsourcing as the industry focuses on core competence, capital efficiency, and operating excellence.

How do you see the project logistics market in 2022 and beyond?

Project logistics by its very nature presents global challenges in normal times. Capacity rollbacks, scheduling, and rising costs are generating havoc on long-planned capital investments. In this perfect storm, shipping/delivery budgets are changing drastically and on the other side, capacity shortages are adding risks to project schedules and execution.

Meaning, some of those CAPEX dollars that are freeing up are being diverted to complete ongoing projects and to meet current market conditions. Where operators in particular are finishing the year with significant cash reserves, the return of capital spending is not increasing at the same pace.

Many developments are still delayed indefinitely and some of the majors are looking to liquidate lesser performing assets.?The resultant consolidation already occurring will drive a more financially attractive market, though that is not necessarily translating so far to a heavier focus on CAPEX.

Some of that “lost capital” will find its way back to the market in terms of committed investment in alternative energy sources which are being fast-tracked. We do not really see a booming market in the short term, but certainly, expect continued improvement as the world opens up and demand continues to increase.

That improvement already started in the second half of 2021 and does not seem to be slowing as we come to the end of the year. More succinctly, we would view a moderate improvement in CAPEX with a maintained focus on improving OPEX and industry leaders continuing to shore up their balance sheets to be better situated for long-term capital investment.

In terms of servicing capital projects, we expect continued improvement on air freight capacity, and though still elevated, continued leveling off of the price point. Already there is less price volatility in air freight. We are forecasting another 20% or more of capacity coming back to the market within 2022. On the ocean freight side, it is not as pretty or clear as to where the market will go.

We forecast continued price elevation and capacity shortages, particularly out of Asia. Some new builds will implement in 2022, but the bulk of that capacity is not slated for fleet integration until H1 2023. SO, as demand continues to increase, supply will not keep the same pace. Noting that COVID variants are again driving shutdowns and holdback, I think most companies are better prepared to maintain productivity in an ever-extending pandemic mode.

The greatest challenges today are around capacity/availability.?We are supporting several EPC and Operators who are struggling with delivery on infrastructure. The budgeted costs are higher, but we have been successful in bringing capacity and managing the schedule to keep those projects on track and on time. Carrier relationships, local market knowledge, infrastructure, and a strong service packet, developed since our inception, have played a strong in a tumultuous marketplace. The risk level for everyone is elevated, but our well-defined Global Energy Solution supports the mitigation of many risk factors that come with the pandemic.

What is the status of decommissioning rigs and installations?

Decommissioning trends do not show a sign of slowing. Certainly, there is a logistics component and heavy-lift competence necessary to complete those tasks. There are still a plethora of opportunities for logistics and specialized heavy lift logistics in this scenario.

Firstly, the decommissioning and deconstruction of some assets presents work opportunities. The pace of that activity will generate short-term, yet higher returns.?Once the asset is gone, the revenue stream will no longer exist of course.?However, there are additional opportunities that arise in that process.

There are plenty of efforts to repurpose some of those facilities for alternate use. Those require CAPEX and will require additional top-side infrastructure and installation. Additionally, with a renewed focus on alternatives, there is also the new infrastructure required.?On a global basis, there are long-term plans for Wind power to come from offshore. For example, there are huge infrastructure projects starting up on the North East coast of the US. That quest for alternatives, especially as technology has improved, will drive continued focus on capital infrastructure.

Though a “cleaner” plays, the challenges of working offshore with large equipment still necessitate the focus on logistics and still has the same competence requirements in moving and installing oversized and out of gauge capital plants. In short, we would foresee demand for heavy lift and capital project services to catch up from pandemic delays, be moderately reduced in the short term as long-planned capital projects are installed.

However, logistics industry prospects are very high for the long term as the world’s need for energy increases and as enhanced as the call for cleaner energy sources increases, the need for project material delivery will also increase. Where the shift and enhancement in industry focus will be there, the specialist's requirements for heavy lift and capital project delivery will increase and bring a new dynamic to the sector.

More about Crane Worldwide Logistics Energy Sector

Crane Worldwide is a focused organization across the entire oil and gas value chain. We provide services in the upstream, midstream, and downstream business sectors. As a well-rounded entity, we also maintain focus in the Energy Portfolio for alternative energy markets and the mining sector also. Specifically, in the Upstream sector, we are a segment leader providing services to the drilling segment and supporting offshore/onshore exploration activities.

Crane Worldwide Logistics works with operators, drilling, EPCs, and OFS.?Beyond freight forwarding and logistics, our energy hub system, situated near the global supplier clusters (Houston, Amsterdam, Aberdeen, Dubai, Singapore) supports the complex requirements of the industry.?We offer a scalable solution that is both economic and operationally efficient. We are a solid outsourcing partner with very high competence within the Energy Industry, reach out if you need support.