North Sea oil production has now been in decline for over a decade, reaching a peak of nearly six million barrels per day in 1999. Gas production, although still climbing for the North Sea as a whole, has been in sharp decline in the UK.
Improvements in technology to increase reservoir recovery have managed to offset this decline for the most part, but now wringing the last few drops out of reserves is becoming increasingly difficult and less economical. As a consequence, decommissioning rates are set to rise sharply on the UK Continental Shelf (UKCS) in the coming decades. With the technical, health, safety and environmental considerations of decommissioning projects of paramount importance, particularly the more complex deepwater operations, costs are expected to rise significantly.
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“Each decommissioning project is a complex process with considerable issues that the industry has to address and manage properly; indeed it is apparent that timescales and the complexity of decommissioning are substantially greater than previously anticipated” explains Paul Dymond, Oil & Gas UK’s operations director.
In 2005 it was estimated that the projected cost of decommissioning projects up to 2040 would be approximately £10bn, but by 2009 this estimate had ballooned to £26bn. The need for efficient and economic decommissioning practices is more pressing than even, and as Dymond puts it “2040 which underlines the value at stake in this business.”
The complexity, technical difficulty and sheer scale of decommissioning projects are major challenges for the industry, for which long-term planning is required. Shell began planning for the Brent field decommissioning in 2006, in a process that is likely to last more than a decade. Firstly, feasible decommissioning options must be considered, followed by the selection of the most suitable option, based on a number of different criteria, including technical difficulty, cost, efficiency and impact on the environment. A detailed plan of the project will then need to be produced to ensure any risks are managed effectively.
Contracts are then procured and the project can begin. This is then monitored through to completion; all of which can take upwards of ten years.
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By GlobalDataOpportunity in adversity
While these complexities may present the industry with significant challenges, technically and economically, there is also the opportunity to capitalise on this increasing decommissioning activity.
“The emergence and development of companies with the capability to deliver the full range of technologies and services is in everyone’s interest,” explains Dymond. By catering to the specific needs of North Sea decommissioning projects, the UK and European industries can benefit from the forecast upswing in business seen in other markets. “In the Gulf of Mexico, for example, a steady stream of projects over the last two decades, and many more following Hurricane Katrina, have resulted in a well-developed decommissioning market,” Dymond says. “Specialist companies, either providing niche expertise or offering a complete one-stop-shop approach, have emerged.”
To steal a march on the global competition, the industry needs to act now to ensure it is the most attractive option for upcoming contracts. “This will require the sharing of insights into market potential within the industry,” says Dymond.
The newly created Decom North Sea group aims to do just that. With highprofile members such as Marathon Oil and BP, the aim is for major North Sea operators, contractors and specialists to come together to discuss the needs of upcoming decommissioning projects and provide the necessary services accordingly. As business picks up in the years ahead, this organisation is likely to come into its own.
Ahead of the game
Although it is impossible to set a specific date for the upswing in business that is expected, acting now gives the UK industry the head start it needs to capitalise. It is very difficult to say exactly when decommissioning will take place as the date at which production ceases is dependent on, among other things, future exploration around an installation, oil and gas prices and the tax and regulatory regime.
However, according to Dymond, it is forecast that 70% of total decommissioning costs will be incurred after 2020. This view is echoed by the UK Government’s Department for Energy and Climate Change, which has stopped publishing forecast installation removal dates because field closure dates change so frequently. For example, in 2009 the predicted cessation of production for 51 North Sea fields was extended by five years or more, while 22 fields were shortened by the same margin.
So, while the expected pick-up in business is difficult to pinpoint, the need for preparation now is paramount, which groups such as Decom North Sea are well aware of. While the days of the UK as a net oil and gas exporter may now be a distant memory, every cloud has a silver lining. The projected increase in decommissioning work due in the coming decades is likely to be a boon for the UK and Europe, provided that the industry acts now to take advantage of this burgeoning sector.
