The future of the oil and gas industry Contents

4Decommissioning

49.Decommissioning refers to the point at which production of oil or gas ceases and infrastructure is removed. Decommissioning is an integral part of the life cycle of oil and gas assets, as Colette Cohen, CEO, Oil and Gas Technology Centre told us:

There is not a decommissioning industry. That is like saying there is an exploration industry. Exploration to decommissioning is cradle to grave in our industry. As a result, decommissioning needs to be done hand in hand with the general activities of the oil and gas industry […] so we need to start integrating decommissioning into business as usual and stop trying to treat it as a separate activity.85

50.The Oil and Gas Authority (OGA) estimates that there are over 250 fixed installations, over 250 subsea production systems, 10,000 km of pipeline, and 5,000 oil wells which will need to be decommissioned.86 Decommissioning in the UKSC is particularly complex because of how integrated the oil and gas infrastructure is, with many installations relying on each other to produce and transport hydrocarbons to shore. The OGA has said that this level of complexity and integration will “require careful planning and execution.”87

51.Graeme Fergusson, Managing Director, Decom Energy, told us that “the scale of the challenge is material. […] Everybody is beginning to get their heads around what the basin faces now. It is a mature basin and irrespective of what the oil price does, we believe decommissioning is here to stay.”88 The graph below from Oil and Gas UK’s Decommissioning Insight Report 2018 sets out the different parts of the process and their costs.89

52.The current mid-point cost estimate for UKCS decommissioning to 2050, is approximately £47 billion.90 Under the current fiscal regime around half of the cost could be paid by the UK Government, through industry tax relief, with HM Revenue and Customs estimating the cost to the Exchequer being £24.2bn.91 However, there is significant uncertainty surrounding this estimate, with an “uncertainty range” of +/- 40%. Hedvig Ljungerud, Director of Policy, OGA told us that the large uncertainty range reflected the long timescale over which decommissioning will happen.92

53.As part of the Government’s Maximising Economic Recovery strategy the industry regulator, the OGA, has set a cost reduction target of at least 35%. Ms Ljungerud said that this target was set in collaboration and discussion with industry and that there was “an element of aspiration in it.” However, she said that the industry’s view was that it was achievable and that their most recent report on this subject had already seen cost projection reduced by 7%.93 Trevor Garlick, Director, Opportunity North East described cost reduction as “one of the biggest prizes” in decommissioning.94

54.As can been seen from the graph above, the plugging and well abandonment account for almost half the cost of decommissioning. The UK Government has committed to reducing the cost of decommissioning, through supporting technological innovation, particularly for the plugging and abandonment of wells.95 Support has already been provided through £1.9m of funding to establish the Decommissioning Centre of Excellence, as part of the Aberdeen City deal.96 The Scottish Government has also established a £5 million Decommissioning Challenge Fund (DCF), which aims to support feasibility work and innovation in respect of decommissioning.97

55.Professor Neilson, School of Engineering, Aberdeen University said the Centre, which was opened in January this year, had issued a call for research proposals and was looking for industry partners.98 He also said that the Centre was bidding for the Scottish Government’s decommissioning fund to allow it to set up the first stage of design of a qualification system for decommissioning wells and was looking to build a qualification rig. He said these new facilities would “give the supply chain opportunities to test things.”99

56.We welcome the current focus on reducing the cost of decommissioning and the ambition of the cost reduction target. We recommend that the Oil and Gas Authority work with industry and academia to set out a roadmap for meeting this target.

Economic Opportunity

57.Decommissioning also represents a significant export opportunity for Scottish businesses. The Institution of Chemical Engineers has argued that Scotland has the opportunity to become “a base for global support to decommissioning.”100 Professor Neilson told the Committee that the opportunities were “relatively large” and that any reduction the Scottish sector could achieve in the cost of well plug and abandonment support would deliver particular benefits.101 Other commentators were less positive, arguing that while decommissioning creates opportunities in the short term, there is a natural limit to the contribution it can make to the economy in the longer term. Dr Tom Baxter, Aberdeen University argues that:

While it’s true you create short-term employment and that the employees and service companies will pay taxes, you don’t build any factories or provide new infrastructure to serve society and the economy. Also, much of the removal money will go to the heavy-lift companies—the UK has none.102

As part of the proposed oil and gas sector deal, the industry is asking for the Government’s support in developing and implementing a Decommissioning Export Strategy.103

58.The UK Government has also emphasised the opportunities presented by decommissioning, saying that Scotland will “pioneer the future of global oil and gas industry”, noting that “the North Sea is one of the first regions in the world to start decommissioning on such a large scale” and there is potential for innovation. This point was echoed by Professor Neilson, who said that as “the most mature basin, we have some experience and, therefore, we lead the edge at this point”.104 The challenging decommissioning environment in the North Sea was also seen as being an asset, with Trevor Garlick, Opportunity North East, agreeing with the sentiment that “if you can decommission a well in the north of the North Sea you can do it anywhere”.105

59.In the 2018 Budget, the UK government said it would launch a call for evidence and work together with the Oil and Gas Authority to identify what more should be done to further strengthen Scotland and the UK’s position as a global hub for decommissioning.106 The Minister said that this represented a change in the way the Government was thinking about decommissioning:

we have been focused on decommissioning, but I think we have been focused on it historically as a cost problem to be solved, and indeed many of the fiscal measures have been directed at decommissioning in the safest possible way and at the lowest cost way. My sense is—and it may just be my perception—that the sudden realisation that this is a massive export opportunity for the UK, frankly, is like so many things we do in the energy space.107

60.The Minister also said that the call for evidence would allow the Government to engage with how technological developments, such as AI and robotics, were changing how the industry approached decommissioning, which linked into some of the main themes in the Government’s Industrial Strategy.108

61.Decommissioning represents a significant export opportunity for Scottish businesses. Scotland has the opportunity to become a global base for the decommissioning industry. We therefore endorse the call in the sector deal for the Government to work with the sector to develop a decommissioning export strategy.

Impact of regulation

62.Decom Energy argued that the current regulatory requirements for decommissioning “have the potential to cause significant delays and added costs.” They were critical of the requirements for operators to produce new studies of all decommissioning options “without being able to rely upon previous successfully executed projects as ‘analogies’ to simplify planning and expedite approval.” Their evidence continued that data must be collected from each asset being decommissioned “even where it is available for near identical assets, leading to the same conclusions yet adding to costs” and that “it would be beneficial for OPRED109 to permit the re-use of established data, studies and even the methodologies defined in approved Decommissioning Programmes for similar assets.”110 When he appeared before the Committee Graeme Fergusson, Managing Director, Decom Energy expanded on this point:

To use my own asset as a specific example, which is nine concrete gravity-based structures, we have spent a considerable amount of time reviewing all of the options, including removing the concrete gravity-based structure in its entirety. I think there is general opinion, general acceptance that it is not possible and not feasible to remove that concrete gravity-based structure right now.

Our question is: is there an opportunity now, as we look forward and redraw the lines for those other seven concrete gravity-based structures that come ahead in the passage of time, to be able to use some of the lessons of ourselves and the other operator, who has a similar asset, again?111

He said that he was not suggesting that you can just use a “cookie-cutter” approach but that, looking at the future of the industry, “there is significant learning with each one that could bear fruit for the streamlining of the process”.112

63.In response, Pauline Innes, Director of Decommissioning (Offshore Oil and Gas), OPRED said that it “already encourages operators to share studies. If you have a similar installation in a similar environment and you have done an environmental study, it seems to make perfect sense for an operator to share that information with another operator. That is something that we strongly encourage.”113 She went on to say that as decommissioning was at its early stages all parties were still learning and that operators were becoming more comfortable about collaborating and sharing data:

Until recently some operators may have thought that in order for them to make the decisions that their organisation needs, they need to conduct their own studies and therefore they would only put trust in their own study. Operators need to get a little bit more comfortable about sharing information and trusting the studies from one operator to another. The system currently allows it. It is set out in our guidance notes that that is acceptable and […] it is something that we strongly encourage on a regular basis.114

64.There is a clear difference in perspective between industry and the regulator on what re-use of information about previous decommissioning projects is possible under the current rules. We recommend that OPRED review how it communicates its requirement to businesses and consider how it can promote the re-use and sharing of information between companies, without compromising the need for the decommissioning company to be accountable for the evidence their plans are based on. The Government must support the industry in sharing best practice and learning important lessons from previous exercises and should consider supporting the creation of an industry standards.

Rigs to Reefs

65.One proposal for an alternative to complete decommissioning and removal of oil and gas rigs that is currently being debated, is leaving them in place to provide environments for marine life. In their evidence the Scottish Wildlife Trust argued in favour of this “rig to reefs” proposal saying that:

Over the lifetime of an oil and gas platform, the subsea structure acts as an artificial reef and a diverse community of marine species establishes on and around the platform. The platform provides a hard, vertical surface in an environment dominated by sand and silt, and can provide:

a refuge for mobile and juvenile fish species (including commercially important species like cod),

a suitable surface for sessile species (immobile species that attach to hard surfaces) to colonise, which has been found to include a rare species of cold-water coral, and

protection from fishing activities (all active platforms have a 500m exclusion zone).115

66.Decom Energy and others argued that the decommissioning process, and in particular removing structures and cutting up and flushing them clean may mean a more significant short-term environmental impact then leaving them in place because of the potential for leakage of residual hydrocarbons and damage to the sea bed from the removal of pipelines.116 When he gave evidence, Jonathon Hughes, CEO, Scottish Wildlife Trust argued that a different approach could be “a triple win”:

there could be substantial savings to the taxpayer and substantial savings to the operator. There could be a net positive effect on the environment in the retention of these sometimes highly biodiverse areas around rigs and other structures.117

67.This view is not universally shared. In their evidence Greenpeace argued that “the best way to ‘help’ marine ecosystems is to restore them to as natural a state as possible once a structure is no longer in use, and instead focus greater attention on reducing pressures […] from other human activities”.118 They continued that there are already regulations surrounding the creation of artificial rigs which “require such reefs to be deliberately designed and positioned for a specific purpose (i.e. to meet specific conservation criteria) and not to be constructed conveniently from waste materials and/or in locations that are convenient to facilitate disposal of such materials.”119 The Scottish Fisherman’s Federation have also expressed scepticism about the benefits arguing that “any possible benefits to fish stocks are viewed as minimal in relation to the sizes and geographical distribution of North Sea and West of Scotland fish stock”;120 they have also raised concerns about the risk of fishing net snagging on any infrastructure left in place.121

68.Mr Hughes told the Committee that the scientific evidence on this subject was “growing all the time”, and that according to a recent paper 94.7% of experts agreed that a more flexible case-by-case approach to decommissioning could benefit the North Sea environment.”122 A collaborative research project called INSITE, (Influence of Man-made Structures in the Ecosystem) based in the University of Edinburgh, has reported that some North Sea rigs act like “small offshore islands,” supporting marine communities that need hard surfaces and attracting predators such as fish, mammals and seabirds.123 According to this research, the platforms have encouraged the recovery of cold water corals that had been endangered by the activities of North Sea trawlers.124 However, Greenpeace argued that this research was preliminary in scope and “certainly does not provide strong arguments for, nor strong evidence to support, a move away from the current policy of removing rigs.”125

69.The UK’s international obligations on decommissioning are governed by the 1992 Convention for the Protection of the Marine Environment of the North East Atlantic (the OSPAR Convention), in particular clause 98/3 on the disposal of disused offshore installations.126 This prohibits the “dumping, and the leaving wholly or partly in place, of disused offshore installations within the maritime area.”127 There are a few exemptions (‘derogations’) to this general rule, which are based on technical rather than environmental considerations, which apply to:128

steel installations weighing more than ten thousand tonnes in air;
gravity based concrete installations;
floating concrete installations;
any concrete anchor-base which results, or is likely to result, in interference with other legitimate uses of the sea.

70.The Scottish Wildlife Trust argued that the current OSPAR regulations do not allow for all decommissioning options to be considered, more specifically the option of leaving a platform in place once operations have finished. In contrast, Greenpeace have said that the current exemptions were recently reaffirmed by representative bodies of the offshore oil and gas industry:

they were satisfied that the existing derogation categories provided operators with the scope they needed and that all other structures could and should therefore be removed.129

71.When we discussed this issue with OPRED, we were told that under current rules 58 subsea installations in the North Sea would be subject to an exemption (derogation) that will means they are able to apply to remain in place.130 Wendy Kennedy, Chief Executive, OPRED said that the rest were “generally quite small” and that “anything that was put in after 1998 was put in with a view to it being easily removed so most of the newer ones are designed to be removed, so that will not be hugely difficult or expensive to do.”131 OPRED also questioned the extent of cost saving this could deliver, arguing that “the cost savings are not quite as big as I think some people are putting on this, because 50% of your costs are plugging and abandoning the wells and a lot of it is taking topsides off” and this work would still need to be done even if the physical rig was being left in place.132 Comparing the situation in the UK to that in the Gulf of Mexico, which is an oft-cited example of a successful “rigs to reef “project, Ms Kennedy said:

We have visited and in the Gulf of Mexico if you want to leave something in place you do not leave it where it is. You have to clean it all up, take away the topsides, cut it, move it to the reefing site that is close to shore, because then it is useful for fishing and things, and then you have to pay money to the local state to maintain that fishing site. In the UK, by the time you have plugged and abandoned the wells, taken off the topside, cut it and started moving it to shore, frankly you are just as well carrying on and decommissioning and having it cleaned up onshore.133

She also noted that:

In the Gulf of Mexico, they are hoping to leave about 10% in these reefing sites. We reckon we will be derogating 20% of the UK’s assets to be left in place.134

72.The Scottish Wildlife Trust submitted further written evidence on this issue to respond to OPRED’s evidence. This said that the Trust recognised that many of the small steel structures were built with removal in mind, but that:

these structures will have been in place for many years by the time their operational life comes to an end and there will be a considerable amount of marine life growing on the structure – despite their relatively short lifespan, they are still acting as artificial reefs. Therefore, we consider that the size and age of an installation should not be determining factors when considering candidates for derogation, and that the environmental impact of removal should be the key consideration.135

They also raised concerns about the current environmental impact assessments that are currently conducted, arguing that:

They did not consider the loss of marine life growing on the structure;
The fact that rigs that meet the derogation criteria can be left in situ means that the process is inherently limited and that not all options are considered.136

73.During this inquiry we heard mixed evidence about the “rigs to reefs” approach to decommissioning. While all parties want the same outcome, to decommission in a way that minimises the harm to the environment, there is clearly genuine disagreement about what policy on the removal of disused rigs will best deliver this. We recommend that OPRED lead discussions with industry, environmental groups, academics and other stakeholders to establish a common evidence base to allow an agreed solution to be found. OPRED should also work with the sector to better explain what is already possible under the current system.

85 Q113

86 OGA, Decommissioning Strategy, September 2016

87 OGA, Decommissioning Strategy, September 2016

88 Q205

89 Oil and Gas UK, Decommissioning Insight Report 2018

90 OGA, Decommissioning Strategy, September 2016

91 HM Revenue & Customs, Annual Report and Accounts 2016–17, July 2017, p171

92 Q289

93 Q286

94 Q129

95 Scottish Wildlife Trust (OGI0008)

96 Aberdeen University, £1.9 million in funding for National Decommissioning Centre of Excellence, 27 April 2018