New opportunities emerging
GIEK is about to resume cooperation with Petrobras, and Brazilian commercial bank Itaú BBA believes that new investment opportunities will emerge. After passing through the perfect storm, water will be calming in the Brazilian offshore and maritime sectors.
This was the message conveyed by many of the high profiled speakers at the first Brazil@Norshipping seminar, held at Nor-Shipping on June 3, 2015. The panel sessions were organized to offer delegates better insight into the risks and rewards of doing business in Brazil, and focused on bringing the Brazilian potential that exists in the maritime and offshore industries to the Norwegian participants at the event. NBCC, Abran, Norwegian Shipowners´Association, BNCC, Intsok, Innovation Norway were all among the organizers of the event, and a 60 people strong delegation from Brazil was present at Nor-Shipping 2015.
«GIEK has faith in Brazil, and we look forward to working with the companies in Brazil in the future», Wenche Nistad, managing director of GIEK said in her presentation to the event. The GIEK exposure in Brazil is high, totaling USD 2,5 billion, 21 percent of the total GIEK portfolio, and the corruption scandal did cause worries for the Norwegian export credit guarantee agency. A long investigative process is now coming to an end.
«GIEK is now ready to resume the close cooperation with Petrobras, after receiving assurances from the new Petrobras management that they are taking this very seriously. International, commercial banks are also signaling eagerness to support new Brazilian projects», Mrs. Nistad says.
Silvana Bianco del Barrio, representing the Brazilian bank Itaú BBA, expects interesting new opportunities to appear as a result of the current crisis. She also predicts that the local content requirements will be eased as Brazil recuperates.
«Brazil was hit by a perfect storm. The corruption scandal in Petrobras has created problems for the oil and gas industry as well as for the infrastructure sector. The falling prices of oil and commodities in the global market aggravates the situation. In Brazil, lack of rain has caused problems with the water and power supply, resulting in the power sector increasing their prices. The Brazilian economy was hit hard, and the crisis affected all sectors at the same time. We have seen a big devaluation of our currency, and 2015 will be the first year of recession after several years of growth. This will inevitably result in divestments in several sectors, which will create new opportunities in the market. We also expect changes in regulations of compliance and of local content in the oil and gas sector. This will create huge opportunities for companies who want to enter the market», Silvana Bianco del Barrio said. Confidence has been compromised the last months, but in her presentation, the Itau representative said that banks have enough liquidity to finance new offshore projects.
Big demands, big fleet
Claudio Cesar de Araújo, the Petrobras Procurement Services Unit General Manager, reinforced that opportunities are abundant in Brazil. He gave an overview of the Petrobras oil production in his presentation and also talked about the company´s need for offshore support vessels. Currently, Petrobras is producing 2,796 mboe/d, about a five percent increase from last year. In April a new production record was set on a pre-salt field, of 802.000 bpd.
«Pre-salt is still a very important opportunity, and Petrobras will continue to dedicate time to make sure we will excel as a market leader and meet the expectations. We believe in our future, and Norwegian companies play a fundamental role in developing our local offshore industry», Mr. Araujo said.
He also talked about the Petrobras need for support vessels. The company has 406 support vessels contracted, and 38 Norwegian vessels are part of the fleet. Cost reduction, improvements in productivity and efficiency and the local content requirements were the challenges that Mr. Araujo highlighted. The need for maintenance of this big fleet was an opportunity identified by the Petrobras official.
«This is a large fleet that has to be maintained. Brazil also has very large reserves to be developed and a very strong domestic market», Mr. Araújo said.
According to Rachid Felix, Vice President of Abeam, the Brazilian Association of Support Vessel Shipowners, more than 20 percent of the world´s total OSV fleet is operating in Brazil, an estimated chartered value in 2014 of USD 3,23 billion. Abeam represents 43 companies and more than 90 percent of the OSVs operating in Brazil and gave an overview of the market for offshore support vessels to the audience.
«About 50 companies are actively operating in vessel support activities, and the fleet is of about 500 vessels, 243 are Brazilian flagged, and 257 are foreign flagged. 25 percent are Norwegian-owned vessels», he said.
The first pre-salt discoveries in 2006 lead to a fantastic ramp-up of the OSV fleet, due to the size of these discoveries as well as the distance to shore, requiring more support from highly sophisticated vessels..
«Due to water depth, distances and work regimes, Brazil probably has the most demanding technical specifications for support vessels», Mr. Felix said
In an analysis of the market, he identified several challenges.
«The market is highly regulated. Brazilian flag vessels have preference, and we have a complex tax regime. But we have giant reserves and the oil and gas sector still forecasts a significant demand for services and products, despite the crisis.»
Red tape, the lack of maintenance yards and the local content requirements was also mentioned. The long-term contracts Petrobras traditionally offers, and the financing schemes available for shipbuilding in Brazil, were mentioned as positive.
«I believe pre-salt will demand more and more high-end vessels, requiring the best technology in the world. Logistical demands and shore support is another investment opportunity», Mr. Rachid Felix said.
According to Tom Mario Ringseth, representing DNB in Brazil and moderator of the Brazil@Norshipping sessions, Petrobras is handling the situation.
«The company has implemented a stronger mechanism for compliance and in 2015, we will see less political influence in terms of price setting. We expect the new investment plan to reduce the amount of investments, but the company will continue to focus on production, and less on exploration. This is a good match for Norwegian industry. I think Brazil will emerge, and I think we will see good business opportunities as we go forward», he said.
An honest message
In the second session of the day, Hans Ellingsen of Olympic Shipping provided the audience with a very honest message. He believes in improvements from the second quarter of 2016.
«We are struggling, but I don´t see any Norwegian company wanting to shut down», Mr. Ellingsen said. In his opinion, the current crisis is partially caused by political missteps, laying a heavy burden on Petrobras.
«The local content requirements and the obligation requiring that Petrobras operates and controls at least 30 percent of every pre-salt blocks created huge problems. They can´t do this alone. But I believe this will change as people are realizing that it is simply not possible. Fears that Petrobras will be sold to the gringos, are totally unfounded, but the regulatory bodies need to understand that they need to open up. Why should international companies pay 70 percent of the bill and not be allowed to operate a field? It is not their job to finance the production for Petrobras. Today Petrobras is in the need of funds to finance their activities, and they are forced to open up. This is why I believe that the crisis is sound to the market. We expect to see a sound and stable growth in the future, but we will only se the results in the second quarter of 2016», Mr. Ellingsen predicts.
In his analysis of the current situation, Mr. José Elias of BG Brazil called for more cooperation and more sharing of experiences between international shipowners.
BG is the second largest player in terms of production in Brazil, producing 148.000 boeds.
«The industry is now maturing, after the unexpected boom of 2010-13. There are opportunities, and Brazilian cabotage could be an attractive investment proportion, if well managed», he said.
As always local content was one of the hot topics of the panels, and local content also divided the speakers of the Brazil@Norshipping sessions on June 3.
Miro Arantes, Manager of the Vard Promar shipyard in Brazil, expressed support for the local content policy.
«I am optimistic when looking forward. Brazil used to be a strong shipbuilding nation. Today the question is how to become competitive again. The scale of the market, investments, technology, quality and people are all fundamental for this recovery. We have the capacity to do what we need, and are preparing to face the future», he said, emphasizing the need to keep enforcing the Brazilian local content strategy.
The lack of qualified personnel and predictability in the market are the main challenges, in Mr. Arantes´view.
Jonas Mattos, representing DNV GL talked about the importance of innovation and the need for improving efficiency of the Brazilian shipbuilding industry.
«We see today that cost is a bigger concern than quality. Productivity is key», he said.
The Norwegian Deputy Minister of Trade, Industry and Fisheries, Ms. Dilek Ayhan, was also among the keynote speakers during the Brazil@Norshipping seminar:
«The maritime sector is the cornerstone in the bilateral cooperation between Norway and Brazil», Ms. Ayhan said. Norway has the second largest offshore fleet in the world, and Brazil is the second most important shipping market outside of Europe to Norway.
«The maritime industries represent 11 percent of the value creation in Norway, not taking oil and gas into account, and development in offshore sector has proved several successful partnerships between Norwegian and Brazilian players», she said.
Mr. Sturla Henriksen, the CEO of the Norwegian Shipowners´ Association (NSA), and Tore Ulstein, president of the Norwegian Confederation of Industries (NHO) gave the opening remarks at the event.
«We are continents apart and different in cultures and climate, but share some distinct common characteristics. We are both two of the world´s largest energy nations, and our energy is offshore. This has lead to close cooperation», Mr. Henriksen said. According to Mr. Ulstein, Brazil is a very important country for the global, shipping cluster.
Jan Tore Linstad (Kongsberg), Arne Christian Haukeland (DNB Brazil), José Roberto Neves (Abran/Solstad Offshore), Helge Møgster (DOF), Harald Martinsen (BNCC) and Camila Mendes Viana Cardoso (NBCC) were also among the participants in the roundtable debates and panels during the Brazil@Norshipping sessions.
The three social projects DreamLearnWork, Kolibri-Children at Risk and Karanba were represented at the event, and Jeanette de Souza Lorvik, Marta eri and Vivi Kunhle distributed fliers and gave information about the projects to the participants.
Nor-Shipping took place from June 1-5, 2015 and is the longest running event of its kind in the world. In 2015, the event celebrated the 50th anniversary. Norway is also considered a global maritime hub, in control of the fifth largest merchant fleet in the world. Nor-Shipping is the largest such event of the year, not only in Scandinavia, but also in Europe. The presence of King Harald V of Norway, prime minister Erna Solberg, and major actors on the world´s shipping stage, like IMO Secretary General Koji Sekimizu and globalization expert Anil Gupta only underlines the importance of the event.
More than 1000 exhibitors were present at Nor-Shipping 2015, from 80 different countries. 19 national pavilions were part of the exhibition, and a total of 35.000 delegates were expected for the numerous events. Several NBCC member companies and other Norwegian companies active in Brazil, were represented at the exhibition with their own stands. Kongsberg, DNV GL, Jotun, DNB, Vard, Wilhelmsen Ships Service, Ulstein, Scana, Harding, Norsafe, Blue Water Shipping, Air France KLM, GIEK, Innovation Norway, Lufthansa, Palfinger, Star Information Systems, Tess, Kleven, NOV, Rolls-Royce as well as BNCC member Wikborg Rein, are only a few examples.
By Runa Hestmann, NBCC journalist
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