The UK Continental Shelf (UKCS) has been providing the UK with energy security for well over 40 years, and currently produces approximately two million barrels of oil equivalent (boe) a day to meet the power demands of the country’s population and industry. It also continues to provide thousands of jobs and is expected to supply the UK Treasury with more than £13bn in tax revenues in 2012.
Still, all good things must come to an end. Despite industry body Oil & Gas UK’s prediction that as much as 24 billion boe remains beneath the North Sea, inevitably some of the longest-serving reservoirs have reached maturity and will soon require decommissioning. Peak oil was reached in the UK North Sea in 1999 and production rates have been in steady decline ever since. Life-extension programmes have gone some way to slowing this decline, with new technologies able to recover reserves previously thought to be unreachable.
Go deeper with GlobalData
"If you take a look at the historical data for close of play (COP) dates for the UKCS, there is clear evidence that they have been moving to the right for many years through new investment to extend the productive life and enhanced oil recovery innovations," explains Richard Brooks, director – offshore environment and decommissioning, Department for Energy and Climate Change. "Looking ahead, the resource is finite and you can only sweat the asset so long as the numbers add up."
This preference for life-extension has put off decommissioning projects for many years, but it now looks as though rates will begin to rise.
"To date, only 7% of the infrastructure has been decommissioned," says Brooks, "but we are currently dealing with 17 programmes, which suggests that a pipeline of work is building."
See Also:
This trend looks set to continue with an estimated £11.5bn earmarked for decommissioning in the current decade alone. With 470 surface and subsea installations, 10,000km of pipelines, 5,000 wells and 15 terminals onshore, decommissioning across the UKCS is eventually expected to cost as much as £31bn. With such huge figures in play, it is crucial that these projects are planned, executed and funded effectively.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataFunding: the default setting
Funding, in particular, is a cause for concern. A growing trend throughout the UKCS is for smaller operators to take over production licences from large multinational oil companies as reservoirs reach maturity. This trend comes with an inherent risk at the decommissioning stage, as smaller operators may not have the capital to adequately carry out the project.
"Decommissioning is a costly business and, to be honest, the smaller the company the higher the risk of default," says Brooks. "We need the innovative thinking and extra production brought by independent companies, but developments must not leave the taxpayer exposed. It is vital that we aim to minimise the risk of default and the cost of decommissioning falling to the DECC and the taxpayer."
This problem is compounded by the historical preference for extending the use of UK offshore installations past their original design life in order to recover more hydrocarbons, meaning that the eventual decommissioning process can become more complex and costly as a result of the age of the infrastructure.
"From the security of supply perspective it is vital that the UK maximises its recovery of oil and gas reserves, and we value the ingenuity, knowledge and experience of the industry in achieving this aim," says Brooks. "That said, the age of installations and pipelines will have an influence on the cost and complexity of decommissioning. Corrosion remains a big issue, pre-decommissioning preparation and post-COP operating costs will be higher and there will be significant issues with wells in terms of poor casing, tubular integrity and the impact of scaling."
Regulators’ role in decommissioning
To successfully meet these challenges, the regulatory environment needs to ensure that all decommissioning projects are carefully planned and executed. By working closely with operators, the DECC is able to ensure comprehensive plans and adequate funding are in place long before a project begins.
"I continually promote the mantra that it is never too early for operators to begin a dialogue with us on individual projects," says Brooks. "For larger projects we would expect to begin discussions at least five years prior to COP, and for smaller projects two years, and we maintain an open door policy."
Maintaining close contact with operators allows the DECC to stay abreast of industry developments and update the regulations regularly.
"The decommissioning guideline notes available online provide guidance and interpretation of the regulations for those engaged in preparing decommissioning programmes, and it is important that we review these regularly to ensure that they reflect both changes to the regulatory environment and the outcomes of industry working groups with whom we participate," explains Brooks.
Despite the extensive groundwork carried out by the DECC and operators, decommissioning is still a field in which the industry has relatively little experience. As a result, improvements are still being made to the regulatory environment to make sure industry best practice is maintained at all times.
"In my opinion, the current regulatory environment in the UK during programme development and execution is fairly robust, although the auditability of the decommissioning process is an area where there is scope for further development and improvement – this will be a focus for the DECC over the next year," Brooks says.
Offshore skill sharing
Looking further afield can also pay dividends. Other regions are also beginning to ramp up their decommissioning operations, so there is much be gained from sharing information among regulatory bodies worldwide.
"We recognise there are differences in the regulatory approaches and it would be remiss of us not to regularly evaluate, contrast and learn from the experiences globally," says Brooks.
However, the challenges around decommissioning projects elsewhere will not always be the same as those affecting the UKCS. Much can be learnt from practices implemented in Norway, for example, where environmental and climatic conditions are similar. With ever-improving processes and a healthy pipeline of projects set to come online over the next decade, the UK decommissioning industry looks set for a boom, allowing the currently limited base of experience to grow in tandem.
"The industry is working hard to share what limited knowledge and experience exists and this should over time lead to more robust cost estimations," says Brooks. "The increasing levels of decommissioning should provide opportunities for economies of scale benefits to be realised and I am aware that the industry is discussing opportunities to approach certain aspects of decommissioning from a campaign perspective.
"For our part, we will continue to work with the industry both at individual operator level and through industry working groups to ensure that we continue to provide an efficient and value-adding contribution to the process of decommissioning the UKCS."
