COLUMN | Crossed wires: the cable-lay business undergoes another paradigm shift [Offshore Accounts]
The offshore wind revolution is creating unprecedented demand for offshore cable installation. For most of the history of the offshore industry, electrical cable connections have been within fields between a few platforms, mostly close together and not especially numerous.
But between now and 2030, Clarkson estimates that more than 18,000 new offshore wind turbines will be installed worldwide, compared to just 7,000 which were in service at the end of 2020 (here). Each turbine needs to be connected by cable to an offshore step-up substation, and then the electricity from the wind farm is transmitted to the national power grid, again by subsea cable.
Plug into Bergen’s hydropower… in London
Additional interconnector cables are being built over vast distances, as well, to share capacity between national power networks. For example, wind farms in the UK can now export surplus power of up to 1.4 GW to Norway, and then, when the wind isn’t blowing hard, the Norwegian grid can send its surplus electricity from its hydropower plants over to consumers in the UK across a 720-kilometre subsea cable. The British National Grid has another next interconnector, known as the Viking Link, planned to connect the UK and Denmark in 2024.
Plans are even afoot to connect solar plants in the Sahara with Western Europe across the western Mediterranean, and to connect Singapore to huge solar farms in the Northern Territories of Australia (here), with what would be the longest subsea interconnector cable ever built, stretching thousands of kilometres.
There’s never been a better time to be in the cablelay business, it would seem. However, a quick glance at the dot com bubble of the late 1990s shows how explosive growth can be as destructive as a shrinking market.
First came the telegraph
Every revolution needs it cables; the ability to send either information or energy over vast distances has transformed business and politics over and over again.
The invention of the electric telegraph in the nineteenth century “nullified distance and shrank the world quicker and further than ever before or since,” according to Tom Standage in his 1998 book The Victorian Internet.
Isambard Kingdom Brunel and the “Victorian Internet”
Ships have always been at the heart of these transformations. In 1866, Isambard Kingdom Brunel’s massive steamship Great Eastern laid the first successful Transatlantic telegraph cable between Britain and North America, establishing nearly instantaneous communication between the continents. This vessel remains bigger than many of the cable-layers in service today, and was over 200 metres long.
Between 1869 and 1874 Great Eastern strung six more cables from Europe to America, repaired two earlier ones, and laid another cable across the Indian Ocean. Now, news and financial data could be relayed in near-real time between the world’s financial and political capitals.
The phone call as a luxury
It was only in 1956 that the first Transatlantic cable for voice telephony was laid between Scotland and Newfoundland, after the development of vacuum-tube repeaters that could operate with no maintenance for at least 20 years, at water depths up to 3,660 metres. This first cable had the capacity to carry 36 voice calls at the same time.
The technology got better, slowly and incrementally, and capacity grew slowly and incrementally. Communications costs fell but for most people as late as the 1970s, international phone calls were prohibitively expensive, even assuming you could make them, which most people in the developing world, China and the USSR certainly couldn’t.
Boring, boring, boring
The cablelay business for most of this era was staid, and government-dominated, as state monopoly telephone companies like British Telecom (BT) and France Telecom laid the cables for their own networks. The cable owners kept vessels on standby at key locations around the world to repair any cable damage.
Shark attacks on cables provided rare excitement, as did ship’s anchors dragging and severing the connection.
Cable and Wireless grows
Growth was steady, and many cable-lay companies, such as France Cable and Radio (now Orange Marine), were government departments. Then came the waves of privatisation in the 1980s and the break up of the AT&T monopoly in the US. Faxes introduced the world to the idea of using telecom lines for more than just telex and voice. The 1980s saw the introduction of brick-sized car phones. People wanted more connectivity in their lives, and phone companies needed more data capacity.
Telecoms companies began to sell off their non-core assets, and to compete against one another at home and abroad. For BT, this led to the sale of BT Marine in 1995 to Cable and Wireless (Marine). C&W Marine added the cable ships CS Monarch, CS Iris, CS Sovereign and CS Nexus to its fleet.
This dot com thing is crazy
Then, the internet changed everything. It’s nearly a quarter-century since the worldwide web upended the cable-lay business, and many are too young to recall the frenzy of excitement that accompanied the explosive growth in net usage. An internet browser company called Netscape listed in New York in 1995, and everyone in the rich world was going online, mainly through painfully slow dial-up connections over existing telephone lines.
At the same time, mobile phone penetration also exploded as 3G technology was rolled out. Every business needed an internet strategy. Every home suddenly gained a computer. Every adult needed an email address, and everyone wanted to play “Snake” on their black Nokia.
Bill Gates made out like a bandit. Millionaires were created overnight; stock prices in technology stocks doubled and tripled and then quadrupled; people quit their jobs to become day traders in a market that only ever seemed to rise.
The dot-com boom of the late 1990s spawned some incredible innovation, including companies that have subsequently come to dominate the world, such as Amazon and Google. There were also many that went bust, and are now forgotten.
Global Crossing creates a new industry
At the heart of the technology frenzy were new subsea fibre-optic networks dedicated to carrying the burgeoning internet traffic. These could carry terabytes of data, with just one cable between the West Coast of the US and Japan offering the capacity to carry over five terabits per second, equivalent to hundreds of millions of simultaneous voice calls. As email volume and web traffic grew exponentially, telecoms and technology companies were clamouring to build new networks and buy extra capacity.
Enter Gary Winnick
This opportunity quickly came to the attention of a former bond trader named Gary Winnick, who founded Global Crossing in 1997 to lay the first privately financed, subsea fibre-optic cable network across the Atlantic.
By 1999, his stock in the company was worth US$6 billion and the Los Angeles Business Journal named him the richest person in LA, a city famous for its ostentatious wealth and Hollywood glamour. Winnick paid US$94 million for a 64-room mansion overlooking the Bel Air Country Club and made various charitable donations around the city from the US$700 million in Global Crossing stock he sold in the boom times.
Global Marine Systems is born
In order to physically lay his visionary data network, Winnick made an acquisition in June 1999. Global Crossing purchased C&W Marine for £550 million (US$880 million at the time).
This deal included all of C&W’s cable ships, submersibles and barges, and all its existing contracts. Global Crossing created a new, separate company named Global Marine Systems to own these assets and perform the cable laying and maintenance work.
With internet use growing exponentially as billions came online for the first time, Global Crossing sought to use its own ships to lay its own intercontinental fibre-optic cables to carry data around the world.
US$50 billion of value in 1999
At its height, Global Crossing’s stock market value reached US$54.5 billion, even though the company had never made a profit. Winnick borrowed extensively to build a 100,000-mile (160,900-kilometre) fibre-optic network that connected more than 200 cities in 27 countries. Global Crossing hoped to dominate the market for high-speed data communications.
Alcatel-Lucent and Tyco go big too, as high demand stimulates supply
Unfortunately, Winnick’s success with his cable network attracted other players into the market – players who were also hungry for outsize returns. Suddenly, everyone was laying private subsea cables and investors were throwing money at them to build more and more data cables. The cable market was growing fast as internet data traffic accelerated, but it was quickly flooded even faster with new capacity, as operators tried to capture market share.
Winnick wasn’t alone. Alcatel-Lucent and Tyco, both manufacturers of cable equipment, saw Global Crossing’s dramatic rise, and promptly ordered their own fleets of cable vessels.
Keppel wins big
That required many newbuild vessels. Tyco placed orders for four massive new cable ships at Keppel Hitacho Zosen Shipyard in Singapore in 1999, with the ships to be delivered in 2001 and 2002, with an option for a further two for delivery in 2003. The company exercised the options on the additional vessels, now known as the Reliance-class (now operated by Subcom here).
Alcatel formed a joint venture with Louis Dreyfus Armateurs known as Alda Marine and promptly built three brand new cable laying vessels: Ile de Sein, Ile de Batz and Ile de Brehat in 2001 at Hyundai Mipo Dockyard in South Korea. A fourth vessel, Ile de Ré, would later join the Alda Marine fleet, after its 2002 conversion in Poland at Remontowa Shipbuilding. In 2015, Alcatel-Lucent bought out Louis Dreyfus (see here).
Between 1999 and 2003, 16 new cable-lay vessels delivered, most ordered at the peak of the market in 1999 and 2000. According to the press release here, Tyco’s vessels at Keppel cost nearly US$40 million each.
Then came the bust. The NASDAQ index of tech stocks lost over 75 per cent of its value within just a few months. Investors who bought even quality companies like Microsoft and Cisco at the top of the market would take a decade to recover their losses. Suddenly, investors wanted profit and cash-flow, not market share and heavy investment in loss-making businesses.
Cutthroat price competition and slower-than-expected demand for its high-speed networks meant that Global Crossing couldn’t service its US$12.4 billion in debt. The company filed for bankruptcy protection in January 2002, and abruptly downsized. Hundreds of employees were made redundant and saw their pensions collapse in value.
In 2004, the Labour Department in the US brokered a US$79 million settlement between Global Crossing executives and former employees who lost their pensions. Mr Winnick paid his former staff US$25 million and kept his house. Unlike the boss of Tyco, he escaped criminal charges.
Too many cable ships
So great was the cable overcapacity created by the boom that not a single newbuild cable ship was delivered between 2004 and 2010.
Many older units were scrapped. Only five ships were delivered between 2011 and 2020, as the industry was starved of investment (see graph here).
Global Marine Systems is passed around
Global Marine Systems was sold off to private equity company Bridgehouse Marine in 2004 as part of Global Crossing’s restructuring. In September 2014, Global Marine was then acquired by another private equity company called HC2, for an enterprise value of approximately US$260 million, which included its debt.
In 2019 Global Marine to sold its 49 per cent stake in Huawei Marine Networks, a joint venture in cable-lay in China, to Hengtong Optic-Electric for around US$140 million. A few months later HC2 announced the sale of Global Marine to a third private equity house, JF Lehman and Company, for US$250 million.
This pass-the-parcel by financial owners interested only in their returns and a quick flip of the company has left Global Marine woefully ill-prepared for the next transition of the cable-lay industry into wind. Its current six cable lay and repair vessels were built between 1995 and 2000, which would make them obsolete in any other sector of the offshore industry.
Orange Marine took the opportunity to announce its first new cable vessel for the telecoms sector in nearly two decades when it signed a deal with Vard and Colombo Dockyard in Sri Lanka for 2023 delivery (here). In February 2019, Alcatel Submarine Networks embarked fleet renewal as well, when it purchased the large PSV Toisa Warrior (built in 2011) and converted the vessel for specialised cable maintenance operations, renaming it as Ile d’Ouessant.
Louis Dreyfus Armateurs, meanwhile, re-entered the cable-lay market as an owner by purchasing PSV Toisa Voyager (built in 2006) for a million dollars in 2019, and converting the ship for cable-lay work under the name Wind of Pride. The company already operates two SOVs to support Ørsted windfarms, Wind of Change and Wind of Hope.
Fleet renewal with twenty-year vessels!
In 2019, Global Marine announced it was modernising and refreshing its own fleet, and adding additional capacity for the windfarm power cable segment by chartering in the 2001-built Normand Clipper for three years plus options for electrical power cable installation. In February of this year, the company also announced a short-term charter of Normand Cutter, also built in 2001.
This isn’t so much fleet renewal as opportunistically adding more aged assets to a fleet already approaching the quarter century. It’s too little, too late.
Demand surges – new players emerge
With the former industry leader hobbled by a shortage of capital for investment, new rivals have stormed in to fill the gap. New technology and ship design improvements offer higher productivity and efficiency in cable lay, and lower emissions – because every new offshore vessel nowadays has to demonstrate its green status.
The challengers have come from two sides. The first of these, and the most formidable in terms of market capitalisation, are the cable manufacturing companies: NKT, Prysmian, and Nexans, This trio have decided to offer their clients cable-laying as a service. Rather than simply sell the power cables ex works, they are now flogging electrical cables and performing their installation at sea with their own ships.
NKT took delivery of the DP3 vessel NKT Victoria in 2017 from Kleven in Norway, sparking an arms race amongst its competitors. Details of the vessel are here.
Nexans delivers this month
On June 8, 2021, Nexans named and received the magnificent CLV Nexans Aurora from Ulstein Verft in Norway. The photos are here and the vessel is technically stunning.
The DP3 CLV is the most technologically advanced of its kind in the world, its owners claim. The 149.9-metre long and 31-metre wide vessel features over 10,000 tonnes of cable load capacity. Nexans said that the ship already has work lined up to lay export cables for the Seagreen wind farm off Scotland, the Crete-Attica interconnector cable in Greece, and for the Empire Offshore Wind project in US.
Nexans also operates the 1976-built Nexans Skagerrak, which has a 7,000-tonne capacity turntable, touchdown monitoring ROV and Capject trencher. The company says that Nexans Skagerrak has installed the longest and deepest cable links around the world, most recently the Monita link between Montenegro and Italy, and the NordLink between Norway and Germany.
Not to be outdone, Italy’s Prysmian cable company has fought back with its new build Leonardo da Vinci, under construction at Vard’s Brattvag shipyard in Norway for delivery later this year.
Prysmian also claims that their new vessel will be “record-breaking” as well. Prysmian said that the ship offers deep water installation capabilities for depths of over 3,000 metres, two cable carousels of 7,000 and 10,000 tonnes to ensure the highest cable loading capacity in the market, two independent laying lines to increase its operative flexibility, and a bollard pull in excess of 180 tonnes “conferring the capability to perform complex installation operations of simultaneous laying and burial, supporting a variety of burial machines like the Heavy Duty Plough and the Hydroplow.”
The new ship is in addition to the three older cable-lay vessels owned by Prysmian in its existing fleet — Giulio Verne (1983), Cable Enterprise (2001) and Ulisse (2011)— along with a wide range pf cable installation and burial equipment, such as the Hydroplows, the HD3 ploughs, the Post Lay Burial machines Sea Mole, SeaRex and Otter.
The Big Four, plus Subsea 7 (Seaway 7)
Electrical power cable laying has also now become a core market for the Big Four Dutch-Belgian contractors (Boskalis, DEME, Jan De Nul and Van Oord, which we covered here) and Subsea 7, which are increasingly offering integrated services in bundles in ways that pureplay companies like Eneti and Cadeler in turbine installation, and Global Marine in cable-lay, cannot match.
Seaway 7, the renewables business unit of Subsea 7, announced in 2020 that it was expanding its renewables fleet with the conversion of a second cable-lay vessel (in addition to Seaway Aimery) as Seven Phoenix was rebranded as Seaway Phoenix and converted as a dedicated inner array grid and export cable installation and trenching support vessel this year. You can see the vessel with its new equipment configuration transiting the Kiel Canal here.
Van Oord new order
Van Oord has followed Prysmian and Nexans in ordering a newbuild. The Dutch contractor announced in December 2020 (here) that it was ordering a new DP2 vessel from Vard in Norway with a below-deck cable carousel and a second carousel on deck, with total cable-carrying capacity of 8,000 tonnes. The company said that the new vessel will mainly be deployed on inter-array grid and export cables of offshore wind projects.
The ship is also able to install High Voltage Direct Current cables. Van Oord’s cable trenchers can also be operated from this vessel and the newbuild leverages on the company’s expertise from its existing modern cablelayer Nexus. The new ship will be Dutch-flagged.
DEME took delivery of the 161-metre long Living Stone in 2017. The vessel features two 5,000-tonne maximum cable hold capacity (here).
All of the Big Four have impressive and growing capabilities in cablelay (see Background Reading for fleet details).
Final player emerges in from the Aegean
The Big Four in wind construction, along with Seaway 7, are formidable competitors to both the cable manufacturers, and to Global Marine. A final competitor has emerged in Greece where Asso has built up a fleet of two cable layers and two trenching support vessels.
Asso Subsea recently won its first contract in the North Sea with Argo, the former subsea vessel Polar King, which the Greek company bought in 2020. After an extensive maintenance and refitting program, which included class renewal, drydocking, significant modification and project mobilisation works, Argo features a permanently installed custom built A-frame for side-launching heavy trenchers, and provision has also been made for an additional A-frame aft to support lighter vehicles and equipment (such as jetting vehicles, boulder clearance tools, etc).
Its strong position connecting up cables between the Greek islands gives Asso a vibrant domestic market to act as a foundation for international expansion.
With windfarm installation surging in East Asia and Europe, with more projects under development in the US, the cable-lay market has never looked better since the year 2000, albeit with a shift to electrical cable from data cables.
But the lessons of the 1990s dot-com boom show that exploding demand can create its own problems of over-capacity very quickly when profits are high and money is cheap and plentiful. The cable-lay industry took more than a decade to recover from that bust, which sent the leading industry player into bankruptcy, and its founder into difficult negotiations to avoid criminal charges.
For now, there is more than enough demand for cable-layers for electrical power installations. Larger interconnectors and ever-increasing numbers of wind turbines offshore show a full pipeline of work for the rest of the decade.
The market seems to be moving towards an integrated model – either integrated with cable supply from the power cable manufacturers, or integrated with windfarm installation by the Big Four and Seaway 7. That threatens to squeeze the specialist pureplay companies.
After nearly twenty years of being starved of investment, cable-lay vessels are back on the radar. We can expect to see more investment in both electrical cable-lay vessels and telecoms vessels.
When does “more” become “too much”? I’ll get back to you in 2030 on that.
You can read the history of Great Eastern as a cablelayer here.
The history of Cable and Wireless Marine and its takeover by Global Crossings Inc by Bill Glover can be found here.
A history the how subsea cables have developed is here.
A directory of the world’s telecoms cableships from the International Cable Protection Committee with photos and technical details of over fifty cablelay vessels is here.
The LA Times’ investigation into the accounting fraud at the heart of Global Crossing is here.
Global Marine’s veteran fleet can be viewed here.
Prysmian’s existing fleet of electrical cable lay vessels can be viewed here.
Seaway Phoenix brochure is here.
The Asso Group fleet is here.