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As oil stabilizes, Gulf yards look to turn the page

Nov 5, 2018 05:02 PM
Asterix, a containership converted into a supply ship by Davie Shipbuilding for the Royal Canadian Navy, undergoes sea trials on the St. Lawrence River last December. The Quebec shipyard is also converting three former oil field vessels into icebreakers for the Canadian Coast Guard.

Courtesy Chantier Davie Canada

Asterix, a containership converted into a supply ship by Davie Shipbuilding for the Royal Canadian Navy, undergoes sea trials on the St. Lawrence River last December. The Quebec shipyard is also converting three former oil field vessels into icebreakers for the Canadian Coast Guard.

Is this finally the bottom? That’s the question being asked along the U.S. Gulf Coast, where nearly four years after the global oil market collapse, demand for new offshore vessels remains virtually non-existent.

Order books that were filled before 2014 carried many shipyards for a couple of years, but very few new offshore supply vessels (OSVs), platform support vessels (PSVs) and crew boats hit the water in 2018. Although oil prices have rebounded and stabilized during the past year, the situation is still grim on the Gulf. Hundreds of boats remain stacked, many operators have restructured or been absorbed through mergers, and shipyard work forces have suffered the inevitable consequences.

And the Gulf Coast is not alone. A July report from London-based VesselsValue showed that for the first half of the year, no new orders were placed for OSVs globally — zero. That sobering statistic reflects continued weakness in the offshore sector and signals that times could be tough for a while longer.

A rigger at Breaux’s Bay Craft grinds the hull of a fast supply vessel under construction at the yard in Loreauville, La.

Brian Gauvin

“The data shows that despite many positive steps being taken in the offshore market by Gulf of Mexico players, i.e. the likes of Tidewater, GulfMark and Harvey Gulf (that are) successfully restructuring financially, the market situation in the GOM is still fairly stagnant,” said Charlie Hockless, VesselsValue’s head of offshore analysis. “Yes, (oil prices have) recovered significantly since the lows of a few years ago and vessel scrapping is at record levels, but we are yet to see the effect of these positives in the market itself. It is surely only a matter of time until we see utilization recover; unfortunately, it is not something that is going to happen overnight.”

For U.S. shipbuilding as a whole, the news from the Gulf is being offset considerably by solid production in other sectors, namely ferries, tour boats and patrol vessels. New orders continue to be logged for a small number of tankers and cargo ships, with work continuing on vessels already on the books. The rise of liquefied natural gas (LNG) for maritime propulsion also holds promise for shipbuilders across North America as new projects hit the drawing board or begin moving to fruition.

Bracing for tariff headwinds
In March, President Trump dealt a potential wild card to U.S. and Canadian yards when he announced a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. While steel and aluminum for U.S. government projects must be domestically sourced, the broader effect on private-sector work and the supply chain is still being assessed. Foreign metals are used in many minor components that go into a vessel, so the cost of those parts could increase.

“As the shipyard industrial base, we’re now seeing the impact of the tariffs on steel and aluminum impacting the costs of vessel construction,” Matthew Paxton, president of the Shipbuilders Council of America (SCA), told Professional Mariner in August. “Where that all plays out, we don’t know. We just know that many of our yards are having to quickly pivot to make sure they can do this work and still eke out a profit.”

Taino, the second LNG-powered con-ro built by VT Halter Marine for Crowley Maritime Corp., is launched in December at the shipyard in Pascagoula, Miss. The first Commitment-class ship, El Coqui, is profiled here.

Courtesy Crowley Maritime Corp.

One issue involves companies turning to domestically produced steel and aluminum in the face of higher import costs, which could push up prices because U.S. mills can’t meet the demand. Canada, the largest exporter of steel to the United States in 2017, slapped $12.5 billion in retaliatory tariffs on U.S. exports after Trump’s move.

Stormy year for Philly
Tariff impacts aside, it’s been a decidedly up and down ride lately for Philly Shipyard, which experienced one of the stormiest years of any U.S. shipbuilder outside of the Gulf.

After the November 2017 delivery of the 600-foot American Pride, the final ship in a four-vessel order for American Petroleum Tankers, Philly was hit broadside by an announcement from TOTE that it was putting a four-containership order on hold. The operator’s plans to launch cargo service from the U.S. mainland to Hawaii were halted by an unfavorable technical review of pier facilities in Honolulu, which prompted the bad news for Philly.

Although work continued on a two-containership order for Matson, the pipeline suddenly looked very dry. With no other new contracts on the horizon, the shipyard announced in May that it would have to lay off 275 workers.

Daniel K. Inouye awaits final outfitting at Philly Shipyard in early August before undergoing sea trials. The Matson newbuild, which will serve the mainland-to-Hawaii trade, is the largest containership ever constructed in the United States.

Bryan Dickerson

“While Philly Shipyard continues to actively seek the new orders and capital necessary to build vessels after Hull 030 (the second Matson containership), it continues to adjust its operations and work force in line with its current order backlog,” the company said in a mid-year financial report. “These adjustments include idling additional parts of its facilities and laying off some more of its employees. Since the beginning of 2018, Philly Shipyard has laid off approximately 25 percent of its employees in a series of layoffs.”

Buoying the shipyard amid the darkening clouds was the June christening of Daniel K. Inouye, the first hull in Matson’s Aloha-class order. The 850-foot, 3,600-TEU vessel is the largest in the operator’s fleet and the largest containership ever built in the U.S. The dual-fuel newbuild was scheduled for delivery in the third quarter.

The skies brightened further for Philly in mid-July when the shipyard announced that it had signed a non-binding agreement to build two 50,000-dwt Jones Act tankers for an undisclosed potential buyer.

“If built, these vessels will be substantially similar to the recently completed series of eight MT50-class product tankers delivered by Philly Shipyard, except the main engines will be upgraded from Tier 2 to Tier 3 compliant,” the company said in a prepared statement.

Metal Shark’s diversification is extending into autonomous vessels. The Louisiana shipbuilder has teamed with ASV Global to offer Sharktech autonomous technology on its entire portfolio of vessels, which range from 16 feet to over 300 feet.

Courtesy Metal Shark

Convert and survive
North of the border in Quebec, the fortunes of Davie Shipbuilding also took a turn upward. Passed over for Canada’s National Shipbuilding Strategy in 2010 as the company recovered from bankruptcy — Seaspan is building non-combat ships under the NSS and Irving Shipbuilding is constructing combatants — Davie has found a niche by lining up conversions.

The first project resulted in the December delivery of the 599-foot Asterix, a containership converted into an ice-strengthened support vessel for the Royal Canadian Navy. The 26,000-tonne Resolve-class ship boasts Canada’s first at-sea hospital facility and the capability to handle the nation’s largest military helicopters.

Davie parent Chantier Davie Canada developed plans for a second Resolve-class vessel, but it has been unable to secure a contract. Ottawa plans to acquire another supply ship in 2021 from Seaspan, which has a $4.1 billion two-vessel deal.

The future of LNG propulsion in the United States got a boost in August with the delivery of Clean Jacksonville. The 232-foot bunker vessel was built by Conrad Orange Shipyard for TOTE Maritime Puerto Rico.

Courtesy Conrad Industries

Undeterred, Davie announced in June that it had landed another conversion project, this one to plug Canada’s icebreaking gap. After pushing Ottawa for years for a contract to supply new icebreakers, the Quebec yard reached a $610 million deal to convert three anchor handling tug supply (AHTS) vessels for service in the Canadian Coast Guard. The trio — Tor Viking, Balder Viking and Vidar Viking — has been acquired from Viking Supply Ships of Sweden.

The first vessel is expected to begin operations in December at the start of the icebreaking season, according to Public Services and Procurement Canada. The second and third vessels will be converted, refit and available for service by the summer of 2019 and the winter of 2019-2020.

Changing tide for propulsion
Diversification has proved to be a winning philosophy for shipyards, allowing them to ride out downturns in one sector and take advantage of upturns in another. Those with a eye toward long-term viability would be wise to apply that approach to propulsion, which has begun a shift away from conventional diesel to hybrid power, LNG and even fuel cells.

Like any new technology, it will take time for the alternatives to gain traction, and it will be decades before diesel goes the way of coal boilers. But progress during the past year continues to signal the change.

Hike Metal Products of Wheatley, Ontario, delivered the 55-foot CCGS Pennant Bay to the Canadian Coast Guard late last year. It is one of 12 Bay-class search and rescue vessels ordered under Canada’s Federal Infrastructure Initiative.

Courtesy Chantier Davie Canada

One of the biggest developments occurred in August with the delivery of Clean Jacksonville, the first LNG bunker barge built in North America. Constructed at Conrad Orange Shipyard in Texas, the 232-foot vessel will refuel TOTE’s Marlin-class containerships, Isla Bella and Perla del Caribe, in the mainland-to-Puerto Rico trade.

“The use of LNG as a maritime fuel results in tremendous environmental benefits — including air and water improvements — and this barge is the final critical component of our LNG program in Jacksonville,” said Tim Nolan, president and CEO of TOTE.

Clean Jacksonville was designed by Bristol Harbor Group Inc., which worked in close collaboration with Conrad Industries, ABS and the U.S. Coast Guard to bring the project to life.

Another advance on the LNG front involved Quality Liquefied Natural Gas Transport (Q-LNG) ordering a second bunkering barge from VT Halter Marine. At 8,000 cubic meters, the new articulated tug-barge (ATB) unit will have twice the capacity of the first barge being built by the Mississippi shipyard.

TOTE’s Orca-class North Star was recently fitted with two bright-green LNG tanks at Seaspan’s Victoria Shipyards as part of the ship’s dual-fuel conversion. Sister ro-ro Midnight Sun is also being converted to cleaner-burning LNG.

Courtesy TOTE

Q-LNG and its minority partner, Harvey Gulf International Marine, will own and operate the vessels to supply fuel to ports in Florida and the Caribbean. Harvey Gulf has five 302-foot PSVs powered by LNG.

Beyond LNG and battery-electric hybrid propulsion is the hydrogen fuel cell. Those who believe that the technology might be a bridge too far for the maritime industry likely sat up and took notice in June when the California Air Resources Board awarded $3 million to Golden Gate Zero Emission Marine to build the first hydrogen fuel cell vessel in the United States.

The 70-foot Water-Go-Round will be designed by Incat Crowther of Australia and built by Bay Ship & Yacht Co. of Alameda, Calif. The aluminum catamaran ferry will be powered by dual 300-kW electric motors linked to independent electric drive trains from BAE Systems. Power will be generated by Hydrogenics fuel cells and lithium-ion battery packs. The innovative vessel is scheduled to launch in mid-2019.

There will be many challenges ahead for fuel cells — logistics involving hydrogen sources and crew training among them — but the potential is real. First, hybrids and LNG-powered vessels will lead the way. The smart money is on designers, operators and shipbuilders willing to commit to a new future for propulsion.

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