BLOG: MARINE INSIGHT

[#1]

The Offshore Marine Market

Have you seen the price of fuel at the pumps over the past couple of years? It’s amazing how quickly these prices can increase and impact our individual spending habits, but have you thought how the price of fuel is impacting the global marine industry?

Interestingly enough, the increasing price of fuel has a very positive effect on the offshore marine market. Offshore marine service providers employ their vessels to global petroleum companies to provide services supporting the construction, positioning, and ongoing operations of the offshore oil and natural gas drilling rigs and platforms. A majority of the revenues realized by these operators are directly a result of the “day rates” achieved in providing these services.

As the price of fuel increases, and the known reserves decrease, the amount of exploration undertaken by the petroleum companies increases. Trends in oil and natural gas prices, strongly influenced by development of the fields, combined with changes in production efficiencies, has a major impact on the number of operating and new vessels. In general, this marine sub-segment is most strongly influenced by the upstream expenditures the oil companies have related to oil and gas exploration. As this exploration moves into deeper and deeper water, the costs involved in the exploration increases as well. Consequently, the market demand for larger and more expensive vessels capable of supporting these activities has increased substantially. Factor into this the average age of the existing fleet (most built in the boom of the 1970's) and there is an increasing demand to scrap out old vessels and replace with new larger, more technically advanced vessels.

As more demand exists for exploration, and more known reserves are identified further and further offshore, the marine offshore market assets will increasingly become a further cost to the petroleum companies. The impact of this is clearly seen in the results of the major engine manufacturers, such as Caterpillar & MaK. During the most recent peak in oil prices, Caterpillar saw our engine deliveries to the offshore customers increase more than five-fold. A great byproduct of a very difficult element of our daily lives.  Of course, the result of this boom in shipbuilding is higher prices for ships and equipment. Eventually this cost filters down to you at the pump. Higher costs for equipment by the fuel companies equates to one of the many contributors to higher fuel price at the pump.

Now that you partly know why your fuel price is so high at the pump, what are your thoughts about the effects on both the Marine industry and you as a consumer?

Message Edited by colgamj on 02-04-2010 03:12 PM

[#2]

Increased costs will drive innovation.  5 years ago a hybrid marine drive system would have been unthinkable, today in my home port a harbor tour vessel demonstrates the technology, and if fuel costs and emissions pressures remain high, this will become a common power plant design in some applications.

Ideas like diesel electric drive systems and compound drives are not common except in specialized applications, but are being considered more as cost of fuel and operation increase and cost of capital equipment including controls and monitoring can be reduced with improved reliability to make these systems viable in broader applications.

The cost will increase, as the resource becomes more scarce and demand continues to grow, only those with the energy and foresight to find relaible and cost effective solutions will survive and thrive, those that continue to do business the same old way won't.

So will CAT be a leader or a follower?

[#3]

How the 2020 vision of Caterpillar is matching aobut this kind of business?

[#4]

Vision 2020 sets targets for our corporation relative to many different variables.  The most exciting is profit, however, revenue is also a key factor.  Considering these ambitious targets, Caterpillar has formed a new division called MPPD (Marine Petroleum Power Division) and appointed a new Vice President, Richard Case.  We see this as a excellent alignment of our Vision 2020 to the growth in the petroleum prices.  We now have the segment focus to ride the wave of increasing fuel prices, while developing specialized and targeted solutions to reach our revenue and profit targets within the marine and petroleum segments.