Offshore Oil Industry Faces "Perfect Storm"
John Simpson | December 19, 2016The decommissioning of aging offshore oil and gas platforms, subsea wells and related assets is increasing dramatically, with more than 600 projects expected to be disposed of during the next five years alone. The costly endeavor involves navigating progressively challenging environmental and waste management regulations and issues for the companies involved, according to a new report by IHS Markit.
“In terms of decommissioning, the global offshore industry is headed for a perfect storm,” says study co-author Bjorn Hem, senior manager of IHS Markit upstream costs and technology service. “We see increasingly stringent decommissioning regulations coming into force at the same time that the inventory of structures nearing end-of-life status is getting larger and more complex.”
Decommissioning costs increase with water depth and vary by platform type, complexity and size. Image credit: Pixabay. According to the IHS Markit report, as exploration and production activity has shifted to deeper waters, harsher environments and more complex projects—some of which comprise hundreds of wells and miles of risers tied back to a few ultra-large platforms—operators now face an enormous task when planning the removal of these assets. Some of these decommissions can cost billions of dollars and take years to successfully dispose of. Moreover, decommissioning delivers no return on investment or revenue and carries significant environmental and regulatory liabilities.
Key environmental issues in decommissioning include dealing with any potential direct effects on the marine ecosystem, ensuring the appropriate use and containment of hazardous substances and addressing waste management issues, including seabed debris accumulated during the life of the platform. Items typically involved in decommissioning include surface facilities, called topsides, as well as subsea installations, pipelines and wells. These topside structures can vary greatly in size and function, from one small well/wellhead to massive deepwater installations, including large processing, storage and staff accommodation facilities.
According to the study, the Gulf of Mexico, with more than 5,000 oil and gas structures in place, has the largest number of platforms to be decommissioned. Over the next five years, however, Europe will absorb approximately 50% of global decommissioning spending as the industry removes major offshore structures from the North Sea.
Costs increase with water depth and vary by platform type, complexity and size—and the North Sea is home to generally larger structures bearing higher decommissioning expenses. For example, one gravity-based system with 22,500-ton topsides and an 180,000-ton substructure has an estimated decommissioning cost of $2 billion.