The ongoing recovery of the Brazilian offshore market is having a positive impact on the offshore service vessel (OSV) fleet. With additional opportunities emerging, the domestic market remains resilient in the near term, bolstered by oil and gas, but the bright spot of wind activity on the horizon means the OSV sector is well positioned for expansion by the end of the decade.
While Brazilian-flagged vessels are preferred (and with additional crewing rules: one-third Brazilians for 90 days, half for over 180 days, and two-thirds for 360 days), increased activity in Brazilian waters is likely to also see foreign vessels enter the market to meet the demand. Currently, 41 foreign-flagged vessels operate in Brazil, representing 16% of the supply. However, state energy company Petrobras remains the dominant force, accounting for 80% of vessel days (152,390 compared to 38,825 for others).
So, what is the outlook for the Brazilian OSV market? Where is demand coming from, and how will the burgeoning wind market make its impact?
Petrobras leads uptick in OSV demand
The Brazilian market includes a significant number of platform supply vessels (PSVs) operating under long-term charters that involve international companies collaborating with Brazilian entities. This market has surged due to high oil prices, which has, in turn, led to new developments and overdue maintenance of the fleet. Since early 2023, vessel demand has outpaced supply, pushing day rates higher. Currently, most of this demand is to replace contracted vessels or extend charters with significant growth potential from upcoming oil and gas projects. The majority of this future demand comes from developments on the Mero, Buzios, Marlim, Bacalhau and Neon fields with the arrivals of new FPSOs.
With this increased demand, there are opportunities for foreign-flagged vessels, including US players, despite the tightening US market. Three PSVs have already been reactivated to seize the opportunity in South America: Hornbeck Offshore’s HOS Fire Serpent and HOS Springfield and Bushbuck from Edison Chouest's affiliate Bram Offshore.
Petrobras continues to drive much of the demand in the sector. The operator recently issued a tender for up to 20 PSVs with contracts starting in the first half of 2024 and charter rates for the contracts ranging from USD 26,000 to USD 44,000. In addition to this ongoing tender, the operator has already secured vessels from previous approaches to the market, with contracts from Brazilian owner Wilson Sons and a charter for Simon Møkster Shipping's subsea support vessel, Stril Explorer, through DOF.
Additionally, it is interesting to note that Brazilian shipyards recently secured funds for new builds and conversions. Brazilian shipyards, supported by the Merchant Marine Fund, have secured R$6.5Bn (US$1.3Bn) for maritime projects, prioritizing R$4.8Bn (US$975M) for newbuild construction and vessel upgrades, particularly in the OSV sector. Wilson Sons shipyard received a significant allocation of R$4.2Bn (US$853M) to build 10 platform support vessels using green ethanol. The CDFMM also approved over R$900M (US$183M) to maintain and upgrade vessels shared between Asgaard Bourbon, Bram Offshore, CBO, OceanPact, and Wilson Sons. The market will anticipate future announcements around these awards as this is a clear opportunity for conversions with energy-saving devices to reduce fuel consumption in this high-emission sector. At a time when no new construction is planned, this announcement is especially impactful, although no firm announcements regarding work commencements have yet been made.
The O&G market mainly drives short-term activity, but wind is fueling longer-term opportunities
Brazil is one of the most active rig markets in the world. Currently, there are 34 floater units (semisubs and drillships) operating in Brazilian waters. Recent Petrobras tenders have seen two of the three newbuild drillships to be contracted in 2023 lined up for multi-year programs beginning in 2024. And more is yet to come with an additional two drillship tenders underway, a further moored semisub requirement, and a rare-for-the-region multi-year jackup tender for plugging-and-abandonment activity in shallow waters. In addition, international operators are also stepping up activity offshore Brazil with recent tenders for, or including, work from Equinor, TotalEnergies, and Shell. As such, the Brazilian fleet will likely increase by between three and five rig units, with many Petrobras slots expected to be fulfilled by incumbent units through extension before the end of 2026, but with some fluctuation.
These high levels of oil and gas activities impact the OSV market, but mainly on a short-term basis. But a burgeoning wind market is waiting in the wings and is set to fuel longer-term opportunities for the Brazilian fleet.
The 2050 National Energy Plan, which was unveiled in April 2020 by Brazil’s energy research office, Empresa de Pesquisa Energética, envisions a potential 16 GW of offshore wind power by 2050. However, despite identifying development zones in key areas (North, the Campos Basin, South) and proximity to load centers, no projects are underway due to pending regulatory approval. On November 1, 2023, the Chamber of Deputies approved the bill that regulates the use of offshore energy potential. The proposal to create the Offshore Wind Power Regulatory Framework now goes to the Senate for analysis.
While the market awaits the regulatory framework, the first offshore wind auction is set for July 2024. This auction aims to allocate rights for four areas defined by the executive branch. Authorization or concession for the areas will be required, and first construction activities are not expected before 2030.
While it is clear that wind projects are yet to become a major part of the Brazilian offshore landscape, the future looks optimistic. New contractors in the wind market will bring fresh opportunities for OSVs, from survey to construction support and O&M. With current forecasting indicating that Brazil will remain one of the more active regions in the O&G market, there could be elements of a supply crunch in the future, as is being predicted elsewhere globally, as O&G and the renewable energy market, including wind, compete to secure vessel time.
More to do for emission reductions
The Brazilian OSV market may be flourishing, but it has a long way to go in terms of fleet emission reductions. So far, just one Brazilian-flagged PSV has been converted with a Battery System onboard: the 2012-built CBO Flamengo was equipped with 870 kWh in collaboration with Wartsila and Corvus Energy back in 2021. So far, there have been no other indications of further such conversions in the fleet.
This contrasts with Norway's OSV market, for example, where ESS is a more common practice for similar fleets, using a majority of high-spec PSVs.
In all, however, the Brazilian offshore support vessel (OSV) market is in good shape. Regulatory preferences, such as Brazilian-flagged vessels and crew requirements, underscore the commitment to a robust domestic maritime industry, but there are opportunities for the international fleet. With demand tightening in the oil and gas market and the domestic offshore wind market waiting in the wings, the Brazilian market is expected to be one of the most active OSV segments for the foreseeable future.