Shirley Allen, partner at Pinsent Masons, takes a look at the legal questions surrounding decommissioning and repurposing of North Sea assets.
Energy transition is now a firmly established strategy adopted by many of the world’s major hydrocarbon producers who have pledged to move towards a low or zero carbon future.
Last week we saw the UK Government announce ambitious targets to accelerate the timescales towards a net zero future.
While much of the focus is on harnessing green energy and devising alternative production methods, the sector is also experiencing a dramatic shift in thinking around the decommissioning of certain oil and gas platforms, pipeline networks, and other assets which are reaching end-of-life.
Only 15% of UKCS infrastructure has been decommissioned to date and it is forecast UK expenditure on decommissioning over the next decade will be around £1.5 billion per annum, while the regulator, the Oil and Gas Authority (OGA), estimates the overall cost of infrastructure removal would top £50 billion.
However, there is a growing realisation that not all obsolete infrastructure may need to be decommissioned in the near future, but instead some could be repurposed and used to generate, store or transport a range of green energy sources, including wind, hydrogen and Carbon Capture Storage (CCS).
Repurposing existing assets would reduce the need to install new infrastructure and systems, therefore reducing carbon emissions during the manufacturing, transportation and construction of new infrastructure, and could potentially reduce the pressure on corporate balance sheets.
This is all to be commended and should be encouraged but before it can happen there needs to be a concerted effort to examine the legal framework around decommissioning and to identify the enablers, and indeed the blockers, in supporting asset repurposing.
Put simply, the current legislation states what whatever infrastructure asset owners put on the seabed, they are responsible for removing, subject to a couple of exemptions. Over the life of an oil and gas asset, ownership will often changes hands, but the responsibility generally remains with the current stakeholders.
But if a third party renewable energy specialist wanted to take over all, or part of, an ageing asset, this would pose all sorts of interesting questions as to the ongoing liability for the maintenance and eventual decommissioning of that asset.
For example, who will be responsible for the upkeep and ongoing maintenance of that asset until it can be repurposed, and how should the financial burden be shared? Will the former asset owner be held partly responsible for decommissioning some 20 or 30 years down the line or will they be relieved of all responsibility, and what happens to the decommissioning security provided by the current owners to cover the cost of decommissioning?
It has been mooted that there could be a case for establishing a completely new regulatory regime, which will lean on best practice and lessons learned over the last half century in the highly regulated oil and gas sector, while incorporating a framework better suited to the fast-moving and constantly changing renewables sector. We recently saw European energy ministers calling for a stable regulatory framework for hydrogen across the European Union in order to create a predictable and competitive market and to attract investors. We need the same here in the UK.
The good news is that the energy industry regulators – the OGA and the Offshore Petroleum Regulator for Environment and Decommissioning – are in “listening mode” and are seeking opinion from a cross section of industry stakeholders as to how to capitalise on what is a genuinely transformative period in the history of energy production.
In the 20 years I have worked in the oil and gas space, it is fair to say I have never witnessed a more dynamic phase and the pace of change in driving forward energy transition is remarkable. Let’s hope the relevant parties and stakeholders can work collaboratively to formulate legislation and regulations which are truly fit-for-repurposing.