Sunday 4 December 2016

As oil slumps, business is booming at Blowtorch Beach where rigs go to die

Firat Kayakiran, Angelina Rascouet and Naomi Christie

Published 12/10/2015 | 02:30

Business is booming in Aliaga, on Turkey's western coast
Business is booming in Aliaga, on Turkey's western coast

When offshore oil rigs reach the end of their useful lives, many head for their final resting place at blowtorch beach.

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There, in western Turkey, ship scrapyards have discovered a new source of income amid the plunge in oil prices over the past 16 months - tearing apart unwanted drilling platforms and selling the steel.

With Brent crude about 50pc lower than last year's peak, there's been a surge in demand to demolish rigs along an almost mile-long stretch of beach at Aliaga, on the Aegean Sea.

Business is brisk, and looks set to pick up further should bearish forecasts come to pass: Goldman Sachs Group, for one, said last month that oil prices could "ultimately" fall to $20 a barrel. "We expect to see more of them heading to our beach later this year," said Adem Simsek, chairman of the Turkish Ship Recyclers' Association, a trade group for scrappers, which says an unprecedented 11 rig demolitions will take place this year, compared with one in 2014. "Fluctuations in the oil market and old age are the main reasons."

The demolitions, which started last year, have altered the landscape at Aliaga because the rigs tower over the merchant ships that have traditionally been the staple for the yards, said Ersin Ceviker, head of the association's waste management department. The platforms can be more than twice the height of conventional ships. They are easier to dismantle, and contain about four times more steel, he said. The rigs are normally towed to the Turkish coast, with some being delivered from as far away as Brazil. Demolition companies have operated in Turkey since the 1970s.

The increase in rig demolition is happening worldwide, said Anil Sharma, chief executive officer of GMS Inc, the world's biggest cash buyer of obsolete ships. The company sells them to recyclers which, in turn, typically sell the scrap steel into domestic markets. Sharma said he hasn't seen as many rigs being cut up since forming his company 23 years ago.

This year, 42 offshore drilling rigs have been removed from the market globally, compared with 30 for all of last year and nine in 2013, according to Clarkson Plc, the world's biggest shipbroker. Turkey is the top destination for scrapping, said Stephen Gordon, an analyst at the company. Even with the influx, Aliaga is handling its normal workload of merchant ships, the recycling association said.

"The demand to explore and drill has decreased dramatically as the oil price fell, creating an over-supply of rigs in a short period of time," Christian Hvide, a trader with GMS, said.

Scrapping involves floating the rigs onto the beach, where workers dismantle what they can. The tide then helps workers pull the structures further onto land, where the demolition continues until nothing remains.

New rigs can cost more than $600m. Some can fetch as much as $10m on the scrap market, and can yield as much as 15,000 tons of steel.

Bloomberg

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