There are many challenges ahead for decommissioning ageing and stranded oil and gas structures in the energy transition, as companies are legally obligated to decommission in a way that minimises the environmental impact and risks, keeping them as low as reasonably practicable.

Aside from safe removal there are a number of other decommissioning options. These include partial removal, leaving structures in place, toppling, relocation or, in the case of Australia, transforming the structures into an ‘artificial reef’. But bottlenecks can be created in the decommissioning process by the growth in renewable energies. The tricky task is to synchronise the growth in renewables with the decommissioning of oil and gas structures.

UK North Sea 
Offshore Energies UK (OEUK) estimates that £20bn will be spent on decommissioning over 2,000 oil and gas wells over the next decade in the UK North Sea. Well decommissioning will be at a rate of around 200 per year, at an average cost of £7.8mn per well. OEUK claims that decommissioning in the UK is ‘expanding fast’ and predicts a surge in activity over the next three or so years.

The surge is a result of energy companies continuing to halt production from fixed, floating and subsea facilities. Emerging offshore energy technologies, like offshore wind farms, will also provide growth in the sector, as they will also require decommissioning at the end of their service lives.

OEUK Decommissioning Manager Ricky Thomson says: ‘The UK’s decommissioning sector is snowballing and will continue growing for years to come. But this poses a challenge as well as an opportunity. The growth of renewables and demand for decommissioning services and expertise will create increasing pressure for resources. This is a great problem and it’s vital this opportunity is properly managed across the sector so that UK firms can capture the lion’s share of this £20bn opportunity. With the right support from government and action from the industry, the UK could make major gains from decommissioning, as well as retain thousands of jobs for this growing sector.’

Recently, Saipem and Allseas won contracts to remove structures from EnQuest’s ageing Heather and Thistle oil production platforms on the UK side of the North Sea after the wells were plugged and abandoned. Saipem will remove and transport the upper jacket of Heather and is deploying its S7000 heavy-lift vessel with a 14,000-tonne combined twin crane capacity. Allseas, a Swiss-based offshore contractor, has been contracted to remove the topsides. Aside from the Heather and Thistle platforms, EnQuest is also involved in decommissioning structures of the completed Alma/Galia project.

‘The growth of renewables and demand for decommissioning services and expertise will create increasing pressure for resources.’ – Ricky Thomson, Decommissioning Manager, OEUK

Norwegian North Sea 
Meanwhile, in the Norwegian North Sea, DOF Subsea, the subsea operating company, announced in February 2023 that it had won a contract from Equinor to decommission the subsea infrastructure around the Heimdal gas production and distribution platform. The Heimdal gas centre in block 25/4 is a processing and distribution hub for gas that consists of a process platform and a riser platform. Its exports from the Statfjord and Gullfaks platforms formed the basis of Statpipe, the cornerstone in the Norwegian gas transport system.

Operations at Heimdal will cease in June 2023 following a decline in production from the Alta, Huldra, Vale, Valemon and Byggve/Skirne fields. The two platforms at Heimdal will be removed and taken ashore for demolition. The DOF Subsea contract involves the removal, transport, recycling and disposal of around 2,000 tonnes of subsea equipment. The offshore work is scheduled to take place during two main campaigns between 2024 and 2028.

DOF Subsea is to decommission the subsea infrastructure of Equinor's Heimdal platform
Photo: Øyvind Hagen/Equinor
 

Australian decommissioning prospects 
The Australian Institute of Marine Science (AIMS) estimates that by 2040 more than 2,500 offshore oil and gas structures globally will require decommissioning at a cost of up to $13bn/y.

Australia’s offshore oil and gas producers are understood to have an outstanding decommissioning bill exceeding A$57bn, according to a federal government-backed study. However, this does not include decommissioning of the vast plants that process offshore gas for export, thousands of onshore wells, or overseas assets owned by Australian companies.

The Australian National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) is tasked with ensuring that oil and gas fields are cleared within five years of the last production. This requirement is strictly enforced, unless companies can show that an alternative will lead to a better environmental outcome.

This has implications for oil and gas mergers and acquisitions (M&A). In 2016, Northern Oil and Gas Australia bought the Northern Endeavour floating production, storage and offloading (FPSO) vessel from Woodside for a token amount. Three years later the company went into liquidation, leaving the federal government with a bill that could top A$1bn to seal the wells on the ocean floor and remove all subsea equipment and the platform. Now the industry must pay a production levy to cover all costs associated with the Northern Endeavour.

Gulf of Mexico 

The Gulf of Mexico has long been a major US oil and gas producing region. However, field depletion in shallow nearshore waters is driving development into deep and ultra-deep waters. This is driving up the cost to develop and decommission infrastructure.

Carbon Tracker estimates that US taxpayers could soon be forced to pay ‘tens of billions’ of dollars to plug and clean up oil and gas wells in the Gulf of Mexico. Rob Schuwerk, Executive Director, Carbon Tracker North America, says: ‘There is a risky bet by regulators that the last companies standing will be willing and able to bear the cost of retiring decades of infrastructure and billions of dollars in clean-up costs instead of walking away from legacy subsidiaries. The only sure-fire way to prevent that is to demand full-cost financial assurance now.’ At best, only 10% of estimated decommissioning costs for the Outer Continental Shelf (OCS) are secured by bonds.

Stephen Greenslade, Analyst at Carbon Tracker, adds: ‘The energy transition will bring forward the retirement of a massive amount of oil and gas infrastructure, and money isn’t set aside to pay the costs. Joint and several liabilities are better than nothing, but only while cash is flowing.’

Canada – Alberta faces costly legacy 
Onshore, the decommissioning of assets such as at Alberta, Canada, following the growth in wind and solar capacity, has resulted in billions of dollars of unfunded liabilities left behind by bankrupt fossil fuel companies. According to the US-based Institute for Energy Economics and Financial Analysis (IEEFA), Canadian oil and gas companies are failing to make plans to pay for $72bn in future decommissioning liabilities for oil and gas wells, pipelines and facilities.

This is likely to result in future corporate defaults, ‘even if they operate in a long-term $80–90/b West Texas Intermediate (WTI) oil price environment', notes IEEFA. ‘Decommissioning liabilities are a major concern for the province of Alberta, which is burdened with more than 80% of asset retirement obligations in Canada. More than 70% of the wells in the province require closure work,’ it adds.

Alberta, a province that not that long ago was largely reliant on coal for electricity, is now home to more than 3,800 MW of wind and solar capacity, 1,350 MW of which came online in 2022 alone. An additional 1,800 MW of capacity is currently under construction.

Brazil projections 
Further south, in Latin America, projections by Brazil’s oil and gas regulator ANP (the Brazilian National Agency of Petroleum, Natural Gas and Biofuels) are for the country’s exploration and production (E&P) decommissioning process to cost $1.87bn this year. The process involves 307 wells, of which 89 are located offshore. National oil company Petrobras, which accounts for 65% of Brazil’s hydrocarbons output, is the operator of most of the projects that are in the decommissioning stage.

According to BNAmericas (a digital intelligence provider), Petrobras’ 2023–2027 business plan includes the decommissioning of 26 platforms (12 fixed, six semi-submersible and eight FPSOs) and 2,500 km of risers and flowlines. Another 27 of the company’s platforms are slated to be decommissioned between 2028 and 2030.

Challenges ahead 
With the relentless march towards renewable energy, the amount of stranded oil and gas physical assets ripe for decommissioning will continue to increase. However, while decommissioning is part of the normal life cycle of every oil and gas installation when an installation reaches the end of its life, there is no ‘one size fits all’ solution. Although oil and gas decommissioning is providing the potential for heavy lift service providers, there remains a risk that some planned decommissioning projects could be delayed by a shortage of the required vessels, lifting equipment and other services.