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UKCS decommissioning cost estimate drops 25% to £44.5bn
10/8/2022
The cost of decommissioning oil and gas infrastructure on the UK Continental Shelf (UKCS) has been cut by 25% in the past five years, says the North Sea Transition Authority (NSTA).
According to its latest decommissioning cost estimate report, the forecast fell £1.5bn (2%) to £44.5bn last year – contributing to a total cut of £15bn (25%) since 2017, when the NSTA introduced a baseline estimate of £59.7bn and set a target of reducing costs by 35% to £39bn by end-2022.
Decommissioning of offshore oil and gas installations is required by law but has long been an expensive and lengthy process. However, ‘the introduction of the target coupled with industry’s ability to learn from experience, share lessons and execute projects more efficiently has been hugely effective’, says the NSTA.
It adds: ‘The highly ambitious 35% target was always intended to be challenging and the significant savings already delivered greatly benefit companies, which can invest more in production and emissions reduction projects, and taxpayers by reducing the cost of decommissioning tax reliefs to the Exchequer.’
Industry made swift progress in the first two years of the target, cutting the estimate by 17%, and while that has slowed, partly due to the logistical and economic pressures of the COVID-19 pandemic, the report suggests that progress has continued.
The scale of reductions to the estimate is reflected in the final costs of completed projects, which are on average 20–25% lower than initially predicted, over the five years, according to the report.
In 2021, decommissioning expenditure totalled £1.2bn, lower than the forecast £1.4bn, due to improved project execution and COVID-related deferrals of activity. ‘This was a sizeable investment in the face of unprecedented logistical and economic pressures, and points to industry’s determination to carry out planned work and meet its decommissioning obligations,’ states the NSTA.
Decommissioning spend is expected to ramp up to a peak of more than £2.5bn/y over the next two decades, offering a long-term opportunity for the supply chain to develop cost-efficient services and win more work overseas.
Improving performance on costs is likely to be challenging in the short term due to market inflation and competition for resources from other energy sectors. Therefore, the report calls on industry to redouble its efforts, ensuring that it plans effectively, collaborates on innovative commercial models, deploys new technologies and, where possible, reuses and repurposes infrastructure – all of which are priority areas in the NSTA decommissioning strategy. Repurposing infrastructure for energy transition projects, including carbon storage, can also make a significant contribution to the UK’s drive to net zero, says the NSTA. It is hoping to drive fresh impetus by engaging with the oil and gas sector to launch a new decommissioning baseline estimate and cost efficiency target, effective from the start of 2023.
