Heavy-lift Vessel Owners Face Changing Legal Landscape
By Malcolm Ramsay
Rising demand for project cargo handling related to offshore wind development may create bottlenecks and legal headaches for shipowners unless greater alignment is achieved, according to law firm Watson Farley and Williams, or WFW.
The boom in offshore wind development in recent years, as firms pivot to renewable power, is expected to create unprecedented pressure on multipurpose shipping, with shipowners facing a changing legal landscape as demand shifts and contracts evolve.
“In the offshore wind sector generally, we see the heavy-lift vessel segment as the key bottleneck impacting development,” Richard Smith, partner, and Gabriela Roque, senior associate at WFW, told Breakbulk. “In this respect, we see the demand for heavy-lift vessels outpacing the global fleet in a matter of few years. This is not only because of the amount of new offshore wind projects in the pipeline, but also because of the increasing size and weight of the turbines, blades and components, which is making parts of the existing fleet unable to serve the industry.”
With much of the industry in transition, the role of specialized heavy-lift vessels is expected to grow as shipowners diversify their fleets. But navigating the changes in demand over the next decade is likely to be a complex task.
“We believe that the demand for specialized installation vessels (turbines and foundation) as well as for multipurpose vessels should remain high over the next years, for the same reasons mentioned above. However, we expect the demand for specialised installation vessels to be particularly significant,” Roque said. “We understand that there are only a handful of vessels that are capable of handling the next generation of wind turbines and the vessels that have larger lifting capacities and are able to work with the most efficiency (e.g. vessel days per installed component) will be in the greatest demand.”
Market analysts estimate that offshore renewable projects achieved record project sanctioning of US$56 billion in 2020, overtaking offshore oil and gas at US$43 billion, for the first time. This trend is expected to continue into 2021 and beyond, raising serious questions for the composition of future heavy-lift fleets. Roque also noted that offshore wind projects due to start in 2022 have an average turbine size of 6.1 megawatts, more than double the industry standard in 2005 when the average was just 3 megawatts.
To meet demand, Smith and Roque also foresee offshore support vessels and crewboats being redeployed from the offshore oil and gas sector to service the offshore wind industry and existing offshore wind installation vessels upgraded to meet requirements for larger turbine sizes.
Legal Complexity
With studies suggesting that the global fleet of installation vessels will be insufficient to meet demand by 2025, the need for long-term commitments is vital. But Roque cautions that shipowners must ensure they have the relevant legal structures in place.
“There is a significant element of speculation when constructing newbuildings for the offshore wind construction phase because the renewal of short-term engagements and market rates in the future are unknown,” Smith explained. “We anticipate investment in the larger projects will be predicated on either medium-term charter commitments or a view on the strong pipeline.”
The interplay between shipbuilding and charter contracts is likely to be vital for successful operation with diligence required by both owners and investors. This may require close attention to drafting and negotiating these two agreements simultaneously.
"As the demand for specialized vessels increases, it is likely that in order to secure or maintain the required delivery slot from a shipyard, the owner might have to start to negotiate with the builder before the charter is in place,” Roque said.
In the longer term, WFW predicts that the offshore wind market can potentially provide opportunities for a range of different asset classes and those breakbulk shipowners willing to adapt may gain competitive advantage.
“One key question is whether current tonnage will be capable of handling the requirements of the offshore wind sector and if so for how long? With the scale of turbines and other related equipment increasing at a rapid pace, even new tonnage could become sized out of the market quite quickly. So considerable thought and due diligence is required before investment in any adaptation or expansion of an existing fleet,” Roque said.
Collaborative ventures and more complex partnership arrangements may also add to the intricacy of future legal contracts as multi-stakeholder developments are closely integrated into power markets in multiple countries. This is further expected to drive the need for new breakbulk handling and logistics expertise towards the latter half of the 2020s.
“Another key consideration for those looking to safeguard interests in the offshore wind space, is the potential to offer new logistics or installation expertise for the industry. Either by way of teaming up with new market participants to plug this gap in required expertise, or by expanding existing business models. This is already being seen in the market, for example in relation to the Dogger Bank Wind Farm (UK) Project, which involved the acquisition of newbuilding transportation/installation assets – advised on by the Renewable Energy and Maritime teams at Watson Farley & Williams,” Smith concluded.
