Report says decommissioning market likely to continue to growNews // December 2, 2016
The 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. This rapid trend toward decommissioning is causing spending to rise significantly, according to a new study by IHS Markit.
IHS Markit expects spending on decommissioning projects to increase from approximately US$2.4 billion in 2015, to US$13 billion-per-year by 2040, an increase of 540 per cent.
The IHS Markit Offshore Decommissioning Study Report provides a detailed market analysis and assessment of the legal, regulatory and financial requirements for decommissioning in the UKJ, Norway, Gulf of Mexico, Indonesia and Australia.
An additional 2,000 offshore projects will be decommissioned between 2021 and 2040, the report noted, and total expenditures from 2010 to 2040 will amount to US$210 billion. During the next five years, Europe will absorb approximately 50 percent of global decommissioning spending as the industry removes major offshore structures from the North Sea. Each year, the industry currently decommissions an average of 120 projects on a global basis, IHS Markit said.
“In terms of decommissioning, the global offshore industry is headed for a perfect storm,” said Bjorn Hem, senior manager of IHS Markit upstream costs and technology service and one of the study’s authors. “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,” Hem said.
“At the same time, the providers of decommissioning services are very fragmented - there are no dominant players, so this makes it even more difficult for offshore E&P companies and offshore service companies to accurately predict decommissioning costs and risks. This is why we embarked on a comprehensive analysis of the associated costs and supply side of this market.”
According to the IHS Markit report, as E&P activity has shifted to deeper waters, harsher environments and increasingly complex projects, some of which comprise hundreds of wells and miles of risers tied back to a few ultra-large platforms, operators now face enormous challenges when planning the removal of these assets.
Some of these decommissions can cost billions of dollars and take years to successfully dispose of, and decommissioning delivers no return on investment or revenue, but instead carries significant environmental and regulatory liabilities.
“The effective decommissioning of offshore platforms, subsea wells, and related assets is one of the most important business challenges facing the oil and gas industry today and in the future,” said Bill Redman, senior director of upstream costs and technology commercial strategy at IHS Markit. “Decommissioning represents a considerable shift in terms of sustainable business planning for most operators.”
“Despite E&P activity in open water that dates back more than 60 years, the offshore decommissioning industry is still essentially in its infancy, and as a result, decommissioning activities play only a minor, if any, role in many operators’ or vendors’ business plans,” Hem said.
“However, due to the increasing number of assets that are destined for decommissioning, along with the increasingly stringent regulatory and environmental considerations relative to offshore operations, this is quickly becoming a business priority for offshore operators.”