Between 2016 and 2040, says analysts Douglas-Westwood (DW), US$70-$82 billion will be spent on decommissioning activity in Denmark, Germany, Norway and the UK; a marked increase on any past work that has been completed, as the region enters a permanent decline. Decommissioning activity is expected to grow over the next few years, driven by the sustained low oil price, the maturity of North Sea fields and the age of infrastructure that has pushed maintenance costs up, leading to a high breakeven price.
Much is being made of the potential for decommissioning in the UK, but according to industry association UK Oil & Gas, there is also significant potential for decommissioning in Norway. UK Oil & Gas believes Norway’s decommissioning market has the potential to be the second largest in the North Sea after the UK Continental Shelf, a fact it highlighted in its recent Norwegian Continental Shelf Decommissioning Insight report, which provides a forecast for the region over the next decade. The publication was launched on 16 February at the Norwegian Petroleum Society’s North Sea Decommissioning conference in Oslo.
According to Oil & Gas UK’s operations director Oonagh Werngren, although the Norwegian oil and gas industry is less mature than the UK sector and decommissioning activity is in its infancy, the report shows there are 12 concrete facilities, 19 floating steel facilities, 88 steel facilities and nearly 350 subsea systems in place, most of which will eventually require decommissioning. An estimated 3,000 wells will also need to be plugged and abandoned.
Oil & Gas UK has worked with the five key operators on the Norwegian Continental Shelf to analyse data that reveals there will be 23 decommissioning projects in Norwegian waters, ranging from small subsea tie-backs to full-scale integrated platform removals, between 2015 and 2024. With the Norwegian Petroleum Directorate estimating decommissioning expenditure during this period could reach NKr 160 billion (US$18.5 billion), the activity represents a significant emerging business in the sector.
Ms Werngren said although decommissioning activity is steadily growing, the industry’s efforts are focused on maintaining offshore production in the North Sea for as long as it is safe and economically possible to do. “To sustain the health of the sector, we must help an efficient decommissioning market emerge as part of, and alongside, the industry’s continued and sustained programme of capital investment in new developments,” she said.
DW’s analysis of the market highlighted the particularly important role new-generation single lift vessels (SLVs) will have in decommissioning. It has looked at two different scenarios, one assuming decommissioning methods will remain the same, with reverse installations utilising heavy lift vessels (HLVs) as the most common method. The other scenario considers the impact SLV Pioneering Spirit and others that follow it could have on the market. This second scenario sees cost reductions of around US$12 billion compared to the first, although it has to be stressed that this is contingent on E&P operators embracing this method of removal over the more established method. As a result, says DW, a huge amount will depend on the success of early removal projects Yme and Brent.
As the country with the largest amount of installed infrastructure, as well as the oldest platforms, the UK will make up over half of all expenditure, with a total cost of over US$50 billion in Scenario 1 or US$43 billion in Scenario 2.
DW says it believes although the UK is the ‘first mover’ as far as decommissioning is concerned, other countries will see reasonably high levels of activity throughout the forecast period and from 2030 onwards, Norway “will grow to become an incredibly important part of the decommissioning market.” It is expected to account for 32 per cent of the total spend in 2016-2040, with 79 per cent of this coming in the last 10 years, as the large hubs finally begin to lose commerciality. As it notes, this represents a powerful opportunity for specialist companies to establish themselves in the industry and become trusted and reliable partners to the platform operators who will desire speed, safety, cost effectiveness and reliability, as they aim to keep decommissioning costs low and ensure removal work is completed without incident.
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Rotterdam provides much more conclusive evidence of another trend that will shape the world economy: automation. Earlier this year its crane-drivers, often referred to as “the kings of the terminal”, went on a 24-hour strike that paralysed large parts of the port for the first time in 13 years. They were protesting against competition from robots. In 2013 the opening of “Maasvlakte 2”, which extended the port by a fifth by reclaiming land from the sea, was welcomed as a feat of engineering not just because it made the Netherlands 20km² (8 square miles) bigger, but also because its new “ghost” terminals run with almost no human intervention. In an episode of “The Wire”, a hit American TV drama, a stevedore at the port of Baltimore declares a jazzy promotional video about Rotterdam to be a “horror movie”.
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