North Sea decommissioning offers 'massive' £21 billion opportunity but challenges remain - new study

North Sea decommissioning offers a £21 billion spending opportunity over the next decade with the domestic supply chain standing to benefit the most, according to a new study.

The forecast comes as it emerged that the oil and gas industry spent £1.6bn decommissioning redundant wells and infrastructure last year, more than in any of the previous five years. The latest North Sea Transition Authority (NSTA) cost and performance report reveals that the industry spent a total of around £8bn from 2017 to 2022 recovering disused oil and gas gear from UK waters for reuse and recycling.

The study predicts that activity levels are to remain high, with more than £2bn a year forecast to be spent on decommissioning and well plugging over the next decade, creating a “massive opportunity” to keep developing skills and experience in the basin and help the UK supply chain win lucrative contracts overseas. According to the report, UK suppliers are in line to secure some 70 per cent of the work associated with North Sea decommissioning projects listed in supply chain action plans lodged with the NSTA last year.

Work to decommission ageing infrastructure comes amid a backdrop of industry transition with renewable projects such as offshore wind touted as a multi-billion-pound opportunity, generating new jobs and reskilling thousands of existing workers. However, the UK government recently gave the green light to hundreds of new exploration licences, pointing to an extended life for North Sea oil and gas production.

The North Sea Transition Authority (NSTA) cost and performance report reveals that the industry spent a total of around £8 billion from 2017 to 2022 recovering disused oil and gas gear from UK waters.

Aberdeen-headquartered NSTA said the sector was living up to its North Sea transition deal pledge to ensure at least half of spending on decommissioning projects goes to the UK supply chain, as well as meeting its legal obligation to clean and remove infrastructure once fields stop producing. It also noted that the industry had built an “impressive track record” of carrying out decommissioning projects cost-efficiently and safely due to its willingness to share learnings and data, while embracing new technologies.

The report acknowledges that achieving further improvements will be “challenging” in the face of factors including heightened demand for equipment, vessels and services from other regions and sectors, such as offshore wind. As a result, prices have been pushed up, taking the total cost estimate for decommissioning to some £40bn.

Pauline Innes, NSTA director of supply chain and decommissioning, said: “The North Sea decommissioning sector is highly active and productive, and the industry is ideally placed to realise the massive £21bn opportunity which will come its way over the next ten years. However, operators must redouble their commitment to collaborate with the supply chain and plan even more effectively if they are to overcome challenging market conditions and remain competitive on cost. The NSTA will continue to use its powers and influence to support the industry as it strives for continuous improvement, including through the development of new benchmarks.”

The NSTA said it was confident that industry can overcome cost hurdles and meet its cost-efficiency target – lowering the £40bn estimate to just over £33bn by the end of 2028. However, operators must strive to deliver their agreed schedules and commitments, work even more collaboratively with the supply chain and share their plans earlier, it added.

While the North Sea sector is in transition, production from some rigs is expected to continue for years to come.

Supply chain action plans were introduced by the NSTA in 2018 as a means for operators to demonstrate they are collaborating openly with suppliers early in the project lifecycle. The government-backed organisation - formerly the Oil and Gas Authority - said it was providing ongoing support by introducing new key performance indicators and benchmarks, developed with industry and underpinned by the collection of new datasets, including the length of time taken to complete specific tasks, the number of crew members employed, and the types of vessels used. Those new metrics promise a more complete picture of how well decommissioning projects are being planned and executed.

Sam Long, chief executive of trade association Decom Mission, said: “Decom Mission, as the independent voice of decommissioning in the energy sector, welcomes the 2023 cost report. As might be expected, macro factors continue to influence both the cost, pace and delivery of decommissioning in the UKCS [UK Continental Shelf] and beyond. In working with our members, the NSTA and others we have a wide understanding of how this market is evolving, who is providing the relevant services and future trends. As the report highlights there remains a considerable volume of work to be executed, the majority of which within the immediate decade.

“Decommissioning is but one of many market opportunities that members face, with the continuing advancement of the energy transition and the international need for decommissioning services. Transparency of coming works and interaction between the owner/operator community and the supply chain is key to ensuring that the services, preferably offered from within the UK, exist to meet this current and future demand. Meanwhile a revision and rebase of the cost estimate helps ensure that both sides are working with a joined-up view of what is needed.”

Bob Fennell, North Sea executive vice president at Harbour Energy, added: “It is critical that North Sea operators work together to ensure that oil and gas assets which, at the end of their production life, cannot be repurposed to support new technologies like carbon capture and storage, are decommissioned safely and in the most cost-effective manner.”

Meanwhile, Heriot-Watt University is launching a master of science degree programme to provide advanced training in the area of energy transition. The programme is being taught in person at the institution’s Orkney campus and focuses on technologies, systems, processes, and economics, alongside the design of transition projects to move away from fossil fuels and accelerate the integration of renewable energy.