New wave of

As decommissioning strategies in the North Sea and the Gulf of Mexico are tweaked for increased effi ciency and cost reduction to maximise economic recovery, some regions are only just putting together their decommissioning frameworks. However, one advantage these new markets have is that with careful planning, they can avoid making the same mistakes that more mature markets have made.

New hot spots

Despite limited experience and knowledge in new key markets such as Southeast Asia (expected decommissioning spend of more than US$77bn), Brazil (US$6bn expected to be spent on 18 Petrobras projects by 2024), and the Arabian Gulf (usually carried out within redevelopment projects and therefore diffi cult to track), the industry is particularly adept at applying global lessons on a situational basis.

Countries such as Australia, Brazil, Brunei, India and Malaysia have been vocal about wanting to engage with the decommissioning expertise of the UK. Petronas, Malaysia’s national oil company, estimates that its spend on decommissioning alone during the next fi ve to 10 years will be around US$2bn.

What does good practice look like?

When planning for the decommissioning of assets, lessons learnt from both the North Sea and Gulf of Mexico apply, with in-region experts able to off er comprehensive insights on planning for the later life of assets into decommissioning. Key points that underpin a successful decommissioning strategy include the need for planning ahead, understanding and controlling the costs associated with the decommissioning of an asset, and engaging clearly and transparently with key stakeholders and the supply chain. Ensuring regulatory compliance, and balancing costs and risks well in advance of cessation of production (CoP), are also crucial.

Collaboration cuts costs

While the life extension of an asset may buy an operator anywhere between one and 10 years of extra production, the extra time can be used for planning and preparation that could save large amounts of money in the future. Unlike other parts of the industry, decommissioning is not a competition, and

Expected decom spend

Southeast Asia

more than

US$77bn

Petronas expects to spend around US$2bn

during next 5–10 years

Brazil US$6bn on 18 Petrobras projects by 2024

it pays to co-operate with other operators to reduce costs for all involved.

The cost of well plug and abandonment is estimated to be around 49% of global decommissioning spend. Operators have

New wave of opportunities?

With US$200bn expected to be spent on decommissioning globally during the next 20 years, EIC’s Diveena Danabalan tracks international developments

devised ways to keep the cost of well plug and abandonment down, including abandonment in batch campaigns, vessel sharing between operators, optimising activity schedules, using alternatives to the existing drilling derrick method, and assessing wells using light well intervention vessels before carrying out campaigns.

Lessons learnt from the North Sea

In the North Sea in particular, costs have been driven down not only by the above co-operation strategies, but also by investment in new technologies. Recently, ConocoPhillips cited that it would see signifi cant cost savings by using a throughtree (rigless) process for well plug and abandonment by SPEX, which removes casing and any associated cement back to the formation, allowing the installation of a permanent barrier.

Over time these technologies will become commercial and widely used. Figures put forward by the Oil and Gas Authority (OGA) show that, compared to 2018, there was a more than £6bn reduction in the like-for-like cost estimate for decommissioning in 2019; the largest fall in costs has been for well plug and abandonment.

The North Sea is a valuable training ground for the fl edgling decommissioning industry

Fairfi eld Energy recently announced that costs for the decommissioning of the Dunlin Cluster in the Northern North Sea had been reduced by £31m thanks to a decrease in well plug and abandonment costs. According to the OGA, running costs for platforms in the North Sea have also been reduced by around 40% during the past two years, due to early well abandonment strategies and prompt de-manning post-CoP.

Looking ahead

Decommissioning is an inevitable part of a fi eld’s life cycle, and should be looked at as an opportunity, not a necessary evil. Experts have speculated that, in the future, the decommissioning market will look very diff erent from today. It will continue to be a niche market, as having too many contractors that specialise in decommissioning would eventually stop adding value and turn the sector competitive, with operators that specialise in decommissioning as opposed to operators falling into it on a project-by-project basis. The UK government is also looking into the use of ready-to-be-decommissioned assets as part of future carbon capture and storage projects, such as the in-development Acorn project, and potentially hydrogen storage.

Exporting UK expertise

The North Sea, despite being a valuable training ground for the decommissioning industry, will soon become an overcrowded market. In a report conducted by Accenture in 2018, an assessment of the UK’s supply chain capabilities concluded there were satisfactory capabilities in the UK to meet the sporadic demand generated from North Sea decommissioning. In fact, due to our expertise in subsea, supply chain capacity was deemed surplus to requirements in this area, hence the need for exporting our capabilities. Well plug and abandonment, regardless of well type – i.e. platform or subsea – was also determined to be catered for. In the foreseeable future, the UK supply chain will have to either export or diversify its expertise, or risk losing out on valuable business opportunities.

By Diveena Danabalan, Senior Analyst – Upstream, EIC

Globally, US$200bn will be spent on decommissioning during next 20 years UK services needed:

Project management Conductor removal

Engineering and planning

Permitting and regulatory compliance Mobilisation and demobilisation of derrick barges

Platform removal

Platform preparation

Well plugging and abandonment Pipeline and power cable decommissioning

Materials disposal and site clearance

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As lockdowns spread around the world, the oil industry faces more disruption to demand and supply chains, writes Boris Ivanov at GPB Global Resources Coronavirus and the oil market

With travel and economic activity across the world restricted, demand for transport fossil fuels has dropped. This reduction in demand is particularly notable in China, the world’s largest energy consumer, which last year accounted for more than 80% of global oil demand. Electricity demand and industrial output in the country has been functioning far below their usual levels, with coal consumption at powerplants down 36% and the countries’ oil refi ning capacity reduced by 34%.

For the oil market, the consequence of this reduced demand has been particularly marked, resulting in a twofold challenge: a drop in oil value and a consequent price war.

OPEC+ cut deal

The biggest issue came in March when the Organization of the Petroleum Exporting Countries and 10 other oil producing countries (OPEC+) failed to agree on stable production levels. With Russia unwilling to accept a production cut of more than 1m barrels per day (bbl/d) to off set falling demand, oil prices fell to a multiyear low. By mid-March, crude prices were down to 30%, sparking a selloff in crude oil.

With the short-term situation proving fl uid as governments around the world initiate several control measures, there is still a great amount of uncertainty over what the full impact of the virus might be for the oil industry, and how things will develop – even with the recent OPEC+ agreement to hold back about 10% of the world’s supplies in May and June, and continue with lower reductions until April 2022.

Black swans and barrels

The oil industry has survived hardship, including the 2008 fi nancial crash, and will survive this latest ‘black swan’ event. Many in the industry are confi dent in their ability to weather market volatility as they did during low-price storms in 2008 and 2016.

However, producers and supply chains have had to adapt. Some oil-producing countries, such as Saudi Arabia, Iraq and Nigeria, have opted to sell crude oil at discounted rates, and several oil companies are scaling down on their exploration, production and new projects budget. Oil majors such as Royal Dutch Shell and Chevron are taking immediate steps to ensure they are well-positioned for the economic recovery. They are signifi cantly reducing their capital spending plan and suspending share repurchases to prioritise long-term value and protect dividends.

Cooperation is crucial

The crisis has revealed certain truths about international cooperation, governance, and the energy system. Companies and oil industry bodies are calling for governments to put measures in place to support oil industries. In the US, there has been a focus on mobilising stimulus funding to purchase crude oil for the Strategic Petroleum Reserve to help prop up gas and oil producers. Likewise, industry trade unions in the UK met with Scotland’s energy minister to discuss futureproof plans for the industry’s skilled workers operating in the North Sea. Such initiatives should help protect the industry and safeguard its workers.

With Saudi Arabia now off ering buyers discounted oil prices, which could lead to further price falls for global oil markets as demand for energy continues to fall, countries must work together on proposed market solutions. We hope OPEC and the US can contribute to the stability of oil prices and return to the negotiating table. Energy cooperation has been a solid pillar of the transatlantic cooperation in the toughest of times, so the importance of maintaining this cannot be over-stated.

Looking to 2021

In the longer term, many are looking towards the likely resurgence of oil demand in 2021. Once the outbreak is controlled, the global economy, particularly China and India, is expected to rebound at a notable rate. As a result, global oil demand could double or triple to make up for the lost demand.

The oil industry is resilient and wellpositioned to withstand this challenging environment and weather market volatility. For oil companies, the priority is to put the health and safety of staff and customers fi rst, and ensure the safety of business operations.

While it is too early to predict the energy outlook for the future as a result of COVID-19, the world will move beyond this, and the business case for streamlining operations and investing in resilience planning will be reinforced and widely accepted.

By Boris Ivanov, Founder and Managing Director, GPB Global Resources

Many are looking towards the likely resurgence of oil demand in 2021