Decommissioning uptick threatens future of small reservoirs, report says

Infrastructure from the Indefatigable field in the southern North Sea arrives in port for decommissioning.

An uptick in offshore decommissioning could make it harder for companies to develop smaller oil reservoirs using existing, ageing infrastructure, a new report said.

DNV GL, technical advisor to the oil industry, said the pace of decommissioning in mature basins was an “emerging challenge”, but that governments are looking for solutions.

In its 2018 Energy Transition Outlook, the organisation predicted fewer major swings in crude prices as global peak oil demand approaches in 2023.

Confidence in offshore oil exploration and production is rising this year, but companies will still be “very cautious” in their approach to new build developments.

DNV GL said international oil companies’ focus on becoming “more holistic energy companies” cast doubt on their appetite to go after new deep water or harsh environment resources.

The authors said: “Many international oil companies are seeking to quit such basins to explore new, perhaps lower-cost environments with larger reserves, or to increase the rate of transition from oil to gas in their portfolios.

“There is an increasing risk that small operators will not have access to existing infrastructure to develop smaller reservoirs through solutions such as subsea tiebacks.

“Several governments are seeking solutions to this challenge, such as the establishment of the UK’s Oil and Gas Authority.”

Offshore development and production costs have dropped 30-40% since 2015 due to commercial pressure on the supply chain, rapid technology implementation, new contracting and ownership models, and greater standardisation.

The global offshore drilling fleet comprised 464 rigs at the start of April 2018, with a utilisation rate of 68%.

About 90 jack-ups have left the fleet since 2014 and day rates will only increase significantly once utilisation gets up to 85%.

The report also said gas would overtake oil as the world’s primary energy source in 2026, accounting for a quarter of the world’s energy by mid-century.

Global upstream gas capital expenditure will grow from £740 billion in 2015 to a peak of £870bn in 2025.

Demand for gas will continue to rise until 2034.

Liv Hovem, chief executive of DNV GL – Oil & Gas, said: “The energy transition will be made up of many sub-transitions. Our Outlook affirms that the switch in demand from oil to gas has already begun.

“Significant levels of investment will be needed in the coming decades to support the transition to the least carbon-intensive of the fossil fuels.

“Gas will fuel the energy transition in the lead-up to mid-century. It sets a pathway for the increasing uptake of renewable energy, while safeguarding the secure supply of affordable energy that the world will need during the energy transition.”