The cost of North Sea oil and gas decommissioning is expected to double to £2billion within three years as oil and gas firms call time on some of their ageing assets, a new report says.
Industry intelligence specialist DecomWorld puts the value of decommissioning costs during 2014 at £1billion, or 4% of total UK continental shelf (UKCS) expenditure.
The market is expected to be worth more than £58billion by 2050 following a big jump in activity by the end of this decade, DecomWorld says in its North Sea Decommissioning Strategy Report 2015.
The projected total decommissioning spend will rise by between £41.3billion and £46billion through to 2040, based on 2014 valuations, the report says, adding that a further £3billion of decommissioning expenditure is forecast for projects that are yet to be developed.
Increased decommissioning activity is expected to provide a wealth of opportunities for energy service firms, although the report warns rampant growth in the market could also put pressure on the supply chain and lead to project cost increases.
Mick Borwell, environment director at trade body Oil & Gas UK, said: “Oil & Gas UK provides an annual forecast on decommissioning costs and wouldn’t want to speculate on figures produced by other organisations without reading the full report in more detail.
“The industry is channelling its efforts into maximising the recovery of the more than 20billion barrels of oil equivalent from the UKCS, which signals that there are still significant resources to play for rather than signalling the death of assets in the North Sea.
“However, the industry recognises that it is also important to balance these efforts with outlining the opportunities decommissioning activities present to the UK supply chain.”
Well plugging and abandonment (P&A) is expected to be the largest item of projected expenditure within decommissioning as well as the area where most cost savings can be achieved.
DecomWorld estimates an £25.8billion well P&A spend from 2014 to 2050, which includes £18billion (60%) on platform and £9billion (40%) on subsea wells.
Recently published draft plans for decommissioning projects include Shell’s Brent Delta topside removal, Centrica’s Stamford subsea infrastructure, Perenco’s Thames, Arthur and Gawain assets and Tullow’s Horne, Wren, Orwell and Wissey developments.
Fairfield Energy announced it would start decommissioning its Dunlin field five years early due to low oil prices, while ConocoPhillips confirmed last month that it was behind a new contract to support decommissioning activity on the Viking gas field in the southern North Sea.
DecomWorld expects at least 20 “cease of productions” for North Sea assets this year, with the annual figure expected to rise to nearly 40 by 2021.