UKCS Oil And Gas Decommissioning Cost Estimate Drops By 25 Pct

UKCS Oil And Gas Decommissioning Cost Estimate Drops By 25 Pct
The decommissioning cost of the UK oil and gas infrastructure has been cut by 25 percent in the past five years, according to the latest estimates.

The decommissioning cost of the UK oil and gas infrastructure has been cut by 25 percent in the past five years, according to the latest estimates.

The North Sea Transition Authority’s (NSTA) Decommissioning Cost Estimate Report 2022 highlights the industry’s ability to generate huge savings for the exchequer and carry out projects in a more cost-effective manner.

The forecast fell $1.82 billion or 2 percent to $54 billion last year – contributing to a total cut of $18.2 billion or 25 percent since 2017 when the NSTA introduced a baseline estimate of $72.5 billion and set a target of reducing costs by 35 percent to $47.4 billion by end-2022.

Decommissioning offshore oil and gas installations are required by law but have long been an expensive and lengthy process. However, the introduction of the target coupled with the industry’s ability to learn from experience, share lessons and execute projects more efficiently has been hugely effective.

The NSTA said that the 35 percent target was always intended to be challenging and the significant savings already delivered greatly benefit companies, which can invest more in production and emissions reduction projects, and taxpayers by reducing the cost of decommissioning tax reliefs to the exchequer.

Industry made swift progress in the first two years of the target, cutting the estimate by 17 percent, and while that has slowed, partly due to the logistical and economic pressures of the Covid-19 pandemic, progress has continued.

In 2021, decommissioning expenditure totaled $1.46 billion, lower than the forecast $1.7 billion, due to improved project execution and Covid-related deferrals of activity. This was a sizeable investment in the face of unprecedented logistical and economic pressures and points to the industry’s determination to carry out planned work and meet its decommissioning obligations.

Decommissioning spending is expected to ramp up to a peak of more than $3 billion per year over the next two decades, offering a long-term opportunity for the supply chain to develop cost-efficient services and win more work overseas.

The report calls on the industry to redouble its efforts, collaborate on innovative commercial models, deploy new technologies, and, where possible, reuse and repurpose infrastructure. Repurposing infrastructure for energy transition projects, including carbon storage, can also make a significant contribution to the UK’s drive to net-zero.

The NSTA is committed to supporting the sector and is encouraged that well-decommissioning campaigns, which deliver better value and fewer emissions, have gained traction in the UKCS, as shown by recent, longer-term contract awards. Furthermore, as the 2017 target helped to sharpen the industry’s focus on costs, the NSTA is providing fresh impetus by engaging with the sector to launch a new baseline estimate and cost efficiency target, effective from the start of 2023.

“Delivering potential savings of £15bn during a short period marked by extremely turbulent economic conditions should give the sector confidence as it looks to the future. The decommissioning market is worth tens of billions of pounds in the UK alone. Our industry is demonstrating that it can complete projects safely, efficiently, and economically in the North Sea, and that places it in a strong position to compete for what is a big international prize. The sector must not lose focus and allow inflation to drive up prices. Now is the time to build on the progress already made. The NSTA is determined to help the sector pick up momentum, including through the introduction of new estimates and targets,” Pauline Innes, NSTA Head of Decommissioning, said.

To contact the author, email bojan.lepic@rigzone.com


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