Unravelling some of the myths around decommissioning

OGUK upstream policy director Mike Tholen
OGUK upstream policy director Mike Tholen

It’s a busy week for decommissioning with our London business briefing focusing on this emerging sector of the industry and we’re also anticipating the publication of the Oil and Gas Authority’s (OGA) 2018 UKCS Decommissioning Cost Estimate report.

The report is an annual review of the range of costs for decommissioning North Sea assets, which will be undertaken over decades to come. It may help to dispel one of the myths surrounding decommissioning that costs are rising ever higher.

Our industry works closely with the OGA, and other regulators, to undertake decommissioning safely, responsibly and as cost effectively as possible – with the shared aim of achieving 35% cost reductions over time.

We’ve weathered several tough years during the downturn but it hasn’t accelerated the rate or cost of decommissioning.

In fact, our forecast shows that the annual decommissioning expenditure is likely to remain consistent over the near term at £1.7 – £2 billion per year.

This is largely due to the significant efficiency improvements the industry has achieved across the lifecycle of oil and gas operations, which have helped delay cessation of production.

And that’s an opportunity to dispel another myth – that decommissioning will be the dominant activity on the UK Continental Shelf in the next decade.

Decommissioning is happening in the basin but it’s taking its place alongside our drive to stimulate further exploration and production activities.

Since the start of the year, we’ve seen the re-emergence of a steady stream of investment, most recently the redevelopment of the Fram field by Shell – a sign that companies are seeking to extend the productive life of their assets.

In May, the outcome of the recent 30th Licensing Round was encouraging, helping us feel positive about the productive future of the UKCS and tie-ing in with industry’s efforts to deliver Vision 2035.

So, with this increasingly positive vision of the future, where does decommissioning fit in?

Undoubtedly, there are opportunities for supply chain companies who can demonstrate they have the capabilities to deliver decommissioning competitively.

However, it’s a myth that this might resemble the bonanza that characterised the boom years of the oil and gas industry.

The key is to get the balance between maximising recovery and managing the growth of the decommissioning market. In this way, we can develop a strong North Sea business that provides another generation of employment in the UK.

The North Sea is one of the few global oil production regions where decommissioning is predicted to grow, albeit steadily, in the next decade.

If we can make the most of sharing our growing decommissioning expertise now – and Oil & Gas UK has an extensive range of literature on the topic – the UK supply chain will have a major opportunity to develop world-class decommissioning capabilities that will have great potential both in the UK and for exporting in the future.

 

 

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