$17bn ‘to be spent on decommissioning by 2025’

Mike Tholen

About £17.6 billion will be spent on offshore oil and gas decommissioning on the UK Continental Shelf (UKCS) between now and 2025, according to a new report from trade body Oil & Gas UK.

The report — Decommissioning Insight 2016 — said there are more than 100 platforms forecast for complete or partial removal from both the UK and Norwegian continental shelves over the next decade.

It said more than 1,800 wells are scheduled to be plugged and abandoned and around 7,500 km of pipeline is forecast to be decommissioned.

Mike Tholen, Oil & Gas UK’s upstream policy director, said: “With low oil prices continuing, you might expect decommissioning to be a key focus for the sector in the years ahead, however we are not witnessing a rush to decommission.

“Different factors are at play and the picture is much more complex.

“Some companies are deferring cessation of production as field life has been extended by sustained efficiency improvements; others are delaying activity due to cash-flow constraints; while elsewhere, companies may be expediting decommissioning to take advantage of falling costs in the current downturn.”

The report was launched at an industry conference on decommissioning in St Andrews, sponsored by Aberdeen Harbour Board.

The report is the first survey of both the UK and Norwegian decommissioning markets and provides the most comprehensive picture to date of anticipated activity in these two countries between now and 2025.

It confirmed that decommissioning “is a growing, if still emerging, market, despite low oil prices continuing to challenge the economics of the more mature offshore assets around the North Sea.”

It said total decommissioning expenditure in the UK and Norway last year was £2.1 billion, up from just under £1.6 billion in 2014, and represented 5% of total industry expenditure, up from 2% in 2010.

Tholen said: “Of the estimated £17.6 billion of decommissioning expenditure on the UKCS over the next ten years, more than 50% of this market will be found in the central North Sea.

“The UK’s supply chain will need to focus on developing a high-quality, cost-efficient and competitive decommissioning capacity to make the most of the opportunity and provide a range of goods and services that can not only be deployed in the UK but also exported overseas.”

Since a 2015 survey, unit costs of decommissioning appear to be falling.

Tholen added: “There could still be up to 20 billion barrels of oil and gas to recover from the UKCS.

“If the UK is to continue to gain the full economic benefit from its oil and gas resource, it is important that the industry continues to work with the OGA as well as with HM Treasury to attract fresh investment, avoid premature decommissioning, retain the critical infrastructure needed to access future reserves and ensure decommissioning is carried out in a timely and most cost-effective way.

“We are now working with HM Treasury to explore further avenues in its ‘Driving Investment’ fiscal strategy for the sector, including the possibility of transferring tax relief on decommissioning costs with the sale of assets.”